USDJPY Has Lost Ground to Most Currencies by GoLearn Forex


The Yen has lost ground to every other currency in the G-10 except the Dollar, since March of 2009.  The BOJ has always favored a weak currency as it supports their large export business which accounts for over 20% of their GDP.


The Chart above is a daily JPY chart looking back through this past March. Although the Yen trended down it was extremely volatile through August.  After mid August it continued  a less volatile trend towards a handle of 88.00 before retracing to 92.00. Since mid October it has been struggling to breach near term resistance at 88.00.

On the daily JPY chart below you can see we added Bollinger Bands (BB). BB are very good during range trading and very dangerous during trending markets.  BB are best understood  as a mean or avg as indicated by the yellow dotted line.  The red lines represent a standard deviation from the mean. In short you expect price to be somewhere between the 2 red lines.  When price nears one of the bands you expect it to return toward the mean, what traders call a reversal.

Notice that from March through August the same period of time shown on Chart A above that price moves precisely the way we expect with BB.  The green swing line shows price moving from one band to the next. However, towards the end of August price does not move towards the mean as the JPY has started to trend.  This is why BB are difficult to use during trending markets as we do not expect price to move back towards the mean.

There are a number of tools available to you via your charting platforms that can help you isolate when to expect the BB reversal versus a false reversal signal.  On the lower half of Chart b the Relative Strength Index (RSI) helps traders identify when a trend  is strong and may continue.  The red vertical line that runs through the false reversal signal also shows that the RSI indicates we are in the footholds of a strong trend. Typically an RSI descending after breaching 70 (over bought) or ascending after breaching 30 (oversold) indicate a weakening trend.

Currently the JPY is sitting on the lower band of the BB and the RSI reads low in terms of trend strength.  Additionally, the Yen is bumping up against R1 and R2 is fairly close as well.  For now it appears that the trend has slowed.