The Japanese Yen has been dropping for several weeks without looking back. We have focused our attention on three Japanese Yen pairs, the USDJPY, CADJPY and the AUDJPY. We have issued several trading recommendations on the short side for all three pairs. Those traders who have entered short positions with a stop loss level have already accepted a loss and are out of all Yen related trades.
We do not use stop loss levels and continue to maintain all open Yen short positions. While many beginners may view it as a wrong trade, we were merely unfortunate enough to be a little too early in this trade which has caused as floating trading losses. We did exit all our long hedges throughout the past three weeks and currently maintain a 100% short trade with every currency pair which is tied to the Yen.
We will continue to hold on to those positions until they reach our predicted take profit levels. We do not expect to add to those positions, unless extraordinary circumstances will create a scenario where it would be logical to add to our existing positions. We will not enter any new long positions in this trade as we view any further upside as unrealistic.
Government interference has caused most of the upside pressure, in particular from the U.S. and their Weak-Dollar-Policy while Japan enjoys a weak Yen which they attempt to ride out as long as possible as it makes exports cheaper. Every Yen related currency trade has been caught in the cross-fire of the two weakest global economies and the Yen has dropped at a record rate.
The AUDJPY has moved higher as visible in this D1 chart. It has not violated its chart pattern, but plenty of bearish pressures have emerged. MACD indicates that momentum has topped out and did not increase with the last part of the rally while RSI has been stuck in extreme overbought territory for an extended period of time.
We expect to witness a breakdown before the year turns with further declines in early 2013. We do raise our take profit level to 85.00 and recommend all traders to ride out the temporary floating trading losses.
The CADJPY has followed in the footsteps of the AUDJPY and has formed a rising wedge formation as visible in this D1 chart. The patterns has remained fully intact and has never been breached while bearish pressures have emerged and are in the process of setting up a major breakdown which should take this pair down to its 200 DMA.
MACD has remained strong while RSI has traded in extreme overbought territory with a final spike into unsustainable levels. The correction should be accelerated once RSI dips below extreme conditions. We expect this pair to violate its chart pattern to the downside. We will maintain this trade as well as our take profit level of 81.30.
The USDJPY has experienced the most unusual market manipulation, but has formed the same rising wedge formation as the AUDJPY and CADJPY. This pair is expected to follow suit in the breakdown of chart patterns and may see the most violent correction. MACD has formed a negative divergence and RSI has traded in extreme overbought territory for a prolonged period of time.
We expect this pair to stage a massive correction which may lead to a breakdown of its 200 DMA. The U.S. is on track to dive off the fiscal cliff which will leave the USD vulnerable and weaker than the JPY. We will hold one to our trades, but raise the take profit target slightly to 79.50.
We understand that all Yen related trades have put stress to portfolios, but a pre-mature exit is not a sophisticated move as the breakdowns of all Yen related chart patterns is imminent. We recommend traders to continue to hold their positions until the trades will reach their take profit levels.