Trade of the week: short USD/JPY
We would like to fade the current rally and sell USD/JPY against major resistance with a stop loss above the Y151.31 March peak and a downside target in the Y148-Y147 region.
(Partial video transcript)
This week's trading opportunity
Axel Rudolph: Hello and welcome to "Trade of the week" on Monday the 6th of October. And let's look at USD/JPY because we can see, after the election of the first female Prime Minister in Japan, since the second World War, or I think forever, the market has rallied quite strongly, the Nikkei 225 hitting new highs. But if you look at the currency, the US dollar has depreciated versus the Japanese yen.
As you can see , we're now trading above ¥150.00. And what I would like to do is actually fade this trade because you can see here, we've got on the Daily Financial Bet a huge gap. And we are, at the same time, approaching resistance. And you can see this resistance going back to March of this year. You have the highs from March at ¥151.31. We've got the highs from the end of March at ¥151.21, and we've got the highs here to August 2025 also around ¥150.92. So there's a lot of resistance up here.
And also you've got the low here going back to February 2025. So, all of that may act as resistance going forward. I think fundamentally, yes, we might expect the Bank of Japan (BoJ) to react slightly differently than before the election of the a new Japanese Prime Minister. But at the end of the day, fundamentally, I don't think much has really changed. So therefore, that's why I want to fade this one and go short USD/JPY with a view of us closing this gap, or basically also perhaps sliding back towards the ¥147.00 area.
Previous weeks' trading outcomes
Now, before I summarise today's "Trade of the week", I'd like to look at the ones from the last two weeks, both of which have been incorrect. So, this one I told you about the DAX 40. We went short. It did go down, but it didn't hit our downside target, which was further down. So, I have to accept that we would have been stopped out above the highs seen on the 5th September. So that one is a loss.
But you can see we had tight stops on here. We lost 2%, but we were right to have our stops in place, because otherwise we could have lost far, far more. As you can see, the DAX rallying very strongly and trading in near two month highs.
We also did go short last week the Russell 2000 because I also thought we were topping out here. We had this negative divergence here on the Relative Strength Index (RSI). And we did, once again, come down in the direction of our setups here. But basically what happened is then we rallied and we had our stop just above the highs so we just got stopped out here intraday, even though we haven't had a daily high above our stop, above this high going back to the 23rd September.
But intraday we did got stopped out on this one on the Russell as well. So we lost another 2% on this. Despite these two 2% losses, I think we are still up around 30% year-to-date.
This week's trade in summary
This week's "Trade of the week" is to go short USD/JPY at around current levels at ¥150.15, with a stop-loss around ¥151.32 and a downside target around ¥148.00 or ¥147.00.
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