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#1 18-11-2021 13:46:19

Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 3176

USD/JPY: is it time to sell (amidst this year's huge rally)?

USD/JPY: is it time to sell (amidst this year's huge rally)?

USD/JPY hit a new higher high for the year as it traded near 115. The pair has rallied in 2021 so far - is it time to sell?

2021 turned out to be the year when the Japanese yen trended lower. The USD/JPY pair, the most important JPY pair, just hit a new yearly high, trading near 115, after starting the year below 104.

A thousand pip rally with small corrections has made this one of the strongest trends in the foreign exchange market. So, what caused the bullish breakout in the USD/JPY?

One answer comes from the Bank of Japan. As of November 2020, the Bank of Japan held $433 billion in domestic equities, making it the largest owner of domestic equities in the country. This came after a decade of buying stocks in an effort to stimulate economic growth. What is interesting is that the Bank of Japan is the only central bank that buys stocks. In addition, some of the money used to pay for the stocks was newly printed. Therefore, the pressure on the Japanese yen makes sense, especially considering the traditional direct correlation between a weak yen and a rising stock market.

However, as impressive as the rally is, there are some bearish technical signs that call for caution.

3 reasons to sell the USD/JPY

First, the market is showing two bearish divergences that form throughout 2021 - the most recent one formed with the new high spelling problem for bulls.

Second, according to Elliott wave theory, we can say that a 5-wave structure, also known as an impulse move, has ended. Judging by the length of the first segment, this could be an impulsive 1st wave extension motion. A new higher high is mandatory during the last segment of such a pattern, and the bearish divergence with the RSI supports the scenario that the impulsive move has ended.

Finally, profit taking could be considered with less than two months of trading left until the end of 2021. Traders should remember that December is a vacation month and most investment houses prefer to take money off the table. After such an impressive rally, it should not be surprising to see big names lining up their positions (i.e. selling) to book profits before the year closes.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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