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Jay Norris
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Jay Norris is a 20-year CBOT floor veteran, author of the Best Seller "The Secret to Trading Forex, Futures, and ETFs: Risk Tolerance Threshold Theory", "Mastering the Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill,... More
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The Secret to Trading Forex, Futures, and ETF's: Risk Tolerance Threshold
  • Welcome To The Golden Age Of Currency Trading 10 comments
    Oct 31, 2012 6:10 PM

    "The widow maker is dead. Long live USDJPY". And so as the bear was laid to rest, the bull ascended.

    I just told my old trading buddy VH that The Golden Age of Currency Trading is nearly upon us. He Skyped back: "Methinks you are exaggerating".

    No, definitely not. Just as sure as AUDJPY jumped 20 pips higher in the time it took to write the last 2 lines, I am not exaggerating.
    I knew we were getting closer to a sea change in the markets when #1: after studying a Daily Yen chart at length several weeks ago I still had no idea what the primary pattern was, and #2: I read an article that several very wealthy macro traders out of London were retiring while they were still very wealthy. Tops and bottoms always create confusion, and leave victims -- the bigger the better generally…nothing personal.

    Given a picture is worth a 1,000 words I give you Figure 1: the USDJPY weekly chart:

    (click to enlarge)
    Figure 1. Weekly USDJPY Chart

    Now everything is making sense to me…and the implications for the other yen pairs is truly exciting. Let me diverge momentarily before I start putting the egg ahead of the chicken.

    A strong yen, i.e.: weaker USDJPY, has been a widespread concern amongst professionals because it showed that the powerful Japanese investor class had not bought into the global recovery as U.S. stock market investors had. Nothing made this development more clear than Japanese traders and investors continuing to forego yield and bring money home, effectively buying Yen, rather than seeking higher interest rate overseas. Quantitative easing and the U.S. stock market was viewed as too "speculative" and Japanese investors opted for a wait and see approach. Until the Japanese currency turned the corner, on its own volition and not on government intervention, a piston was missing from the engine that powered global investment markets. That piston, in the form of USDJPY, is finding traction just ahead of the New Year.

    The broad market over the last few years has been a one trick pony. As the S&P 500 went so went currencies and commodities. Every time U.S. stocks corrected - essentially every summer - currencies and commodities dove lower also, while the Yen strengthened, solidifying its role as a flight to quality currency. Yet as stocks recovered and then moved higher, and the currencies and commodities dutifully followed, the Yen never weakened. The effect was an uptrend in U.S. blue chips and a downtrend in USDJPY. These conflicting trends were counter-intuitive for a recovering global economy. A strengthening U.S. stock market told us there was hope, but a weakening USDJPY told us the world's second largest investor classes, the Japanese, were not buying into it; until now. The exciting part about this for all of us is how cheap the U.S. Dollar and the other major currencies are against the yen, particularly relative to asset class prices. In simple terms: one of the world's wealthiest investor classes is about to get back into the markets, and they are going to be picking out companies and investments in the U.S., Canada, Great Britain, Australia, and even Europe, that have weathered the Great Recession. And because the yen has been so strong, if you are a Japanese investor there is still plenty of value in assets denominated in foreign currencies. The same is true of currency markets. Look no further than the USDJPY chart in Figure 1 so see how much room there is on the upside.

    We are indeed entering The Golden Age of Currency Trading.

    To see Jay Norris point out trade set-ups and signals in live markets on the London/ U.S. overlap go to: Live Market Analysis.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (10)
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  • Lance
    , contributor
    Comments (83) | Send Message
    Jay, what would you say to the idea that turns in currency markets are usually preceded by a complete flush in the opposite direction first? Has that happened in USD/JPY? While I like the pair long over time, I don't feel that time is of the essence right now, and I'm suspicious that there are a lot of weak hands holding long positions right now. And nobody searches for weakness any better than the currency market.
    31 Oct 2012, 06:39 PM Reply Like
  • Jay Norris
    , contributor
    Comments (221) | Send Message
    Author’s reply » I agree Lance that that is a valid point. My method however is screaming "buy dips" so that's what I'll do
    1 Nov 2012, 09:02 AM Reply Like
  • B haskell
    , contributor
    Comments (4) | Send Message
    up or down would be a welcome change from watching the paint dry of late ,
    31 Oct 2012, 09:21 PM Reply Like
  • Lance
    , contributor
    Comments (83) | Send Message
    That's not a very good comment, because "up or down" makes a difference. You don't know, or have no opinion? Don't post.
    1 Nov 2012, 04:51 AM Reply Like
  • Jay Norris
    , contributor
    Comments (221) | Send Message
    Author’s reply » Thanks B haskell,
    I think volatility picks up on an upside break out but settles down as the market goes into a slow roller to the upside...IMHO
    1 Nov 2012, 10:07 AM Reply Like
  • Will123
    , contributor
    Comment (1) | Send Message
    Jay I read this article about 5 times because it was such an enjoyable read. I agree with you about the Yen making a turn. Back in 2007 the gbp/jpy cross was at 250+. Now it is at 129+. The Yen is strong. I have not read an article in awhile that was not only interesting but informative.


    What are your thoughts on the Japanese end of year accounting season on March 31 of next year? With the Yen being as strong as it is today I don’t see the end of year accounting having any bearing on the Yen having to strengthen. I actually see the Yen weakening for some time to come.
    2 Nov 2012, 02:35 AM Reply Like
  • Jay Norris
    , contributor
    Comments (221) | Send Message
    Author’s reply » Will,
    I am really energized by this shift in the Yen. Japanese investors are going to be on a shopping spree in U.S. Brit, and Aussie shares given they have such buying power -- as you said GBPJPY has been cut in half, meaning Japanese investors can buy shares/paper of Brit companies that survived the great recession 50% cheaper than 5 years ago.


    I teach trading -- we do it in live markets 4-days a week --and I can tell you I'm defiinitly ready to get into an environment where we can get into some "runners" -- trend trades -- instead of this counter-trending business all the time. It is true that what does not kill you makes you stronger but it's about time to really prosper!


    The Euro IMHO is just one big distraction. Long Live the Yen Pairs!


    Re: the end of the year in Japan -- I just don't know enuf about it to comment.
    2 Nov 2012, 10:43 AM Reply Like
  • FX Banko
    , contributor
    Comments (7) | Send Message
    $JPY: First major resistance comes in 80.61/66 seen on the D chart (high of 02.05.2012, high of 25.06.2012 and the last weeks high).


    We have the 80.37 working as a pivot for the next days.


    Important support trendline on the hourly chart that comes in 80.33 at 21:00 Sunday Ldn time.


    see more at: http://bit.ly/RD5ADx
    4 Nov 2012, 10:04 PM Reply Like
  • kugan
    , contributor
    Comment (1) | Send Message
    Very interesting comments. Thks. However, as an institutional investor, I don't see any significant weakening of the JPY until at least next year. The weak hands refereed to in a post above will add to an intermediate rebound in the JPY as Obama wins and the fiscal cliff worries markets more than it should. 100% in agreement over the medium term though.
    5 Nov 2012, 03:02 AM Reply Like
  • Jay Norris
    , contributor
    Comments (221) | Send Message
    Author’s reply » thanks FX Banko and Kugan,


    I'm taking a long view here, but I will defintely buy dips -- trade it --short term, particularly audjpy and gbpjpy....
    5 Nov 2012, 07:49 AM Reply Like
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