This is my first 2018 article, so I hope you had a great holiday season and you’re ready to resume making forex profits this year.
Remember, we really rung the bell in 2017 and took home well over 9,000 pips in profit. For every one lot contract that meant $90,000 in your account. (Even small accounts could have brought in over $9,000 or more by trading mini-lots instead.)
That was great — but let’s try to do even better in 2018.
There are already several interesting trends emerging to help us do exactly that.
This week I’d like to focus on weakness across the board in the Japanese yen (JPY). You see, even though the US dollar looks to be headed lower, the Japanese yen looks to be the weakest of all the major currencies. Therefore JPY holds the greatest FX profit potential for us, to the tune of hundreds of pips in gains.
I’ll get to USDJPY in just a moment, but first we need to look at the US Dollar Index so you can understand just how weak JPY is by comparison.
Despite three Fed interest-rate hikes in 2017 and a Fed Fund futures project an implied rate of 1.94% for 2018, USD didn’t see much of a lift going forward. In fact, the most recent Non-Farm Payrolls (NFP) fell short of the consensus forecast. This led USD on a trajectory toward a three-year low.
You might recall that a few weeks ago, I observed the USD appeared to have run into “headwinds” with a small double top within the long-term megaphone top pattern.
Well, the dollar certainly followed through on that prediction. I expect it to head all the way down to the neckline at the 1170 area, bounce once or twice, and then drop even harder below that.
This opens up some very interesting possibilities in commodities against the dollar, but I’ll save that discussion for next week because you need to know what’s happening in the yen too.
Let’s start with USDJPY to lay down the base case against the yen even though I don’t recommend using USDJPY to exploit JPY weakness. After all, you get the biggest FX gains by taking a pair with one currency that’s strong against another that’s weak. Both USD and JPY are weak so the move won’t be as strong.
But it’s important to see just how very weak JPY is even when compared to USD.
In the last few months of 2017, I was leaning to the short side of this pair until it failed to follow through to the downside.
I was bearish due to the long-term head and shoulders formation and the more recent reverse triangle (both very bearish patterns). However, USDJPY couldn’t drop below the reverse triangle and in fact bounced strongly with a few bullish key reversals.
(A bullish key reversal is when a bar makes a new low and then closes on the high of the week. It shows the sellers were rejected and the buyers were strong.)
Now we’re poised for a surprise move to the upside in USDJPY due to JPY showing all the strength of wet tissue paper.
Just don’t use small-calibre ammunition like USDJPY to exploit the coming JPY swoon. I’d rather use two pairs which offer far more bang to the buck: GBPJPY and CADJPY.
That’s primarily because both GBP and CAD look ready for extended runs with some real strength across the board.
Let’s look at GBPUSD and USDCAD so you can see the proof for yourself. First, let’s start with GBPUSD:
While GBPUSD could continue to go sideways between 1.3200 and 1.3600 for next few weeks, it did in fact close above a long-term downtrend line this past week (again). The more recent uptrend line remains intact and unbroken at any point.
This is bullish and means any further price action above 1.3600 is likely to bring with it an explosive move higher. GBP’s long term downtrend since Brexit appears to be over and I think we’re going to be pleasantly surprised at how strong it will be in 2018.
As for USDCAD, it’s also broken a key level in the last week and is poised to drop hard.
The long term pattern here is the bearish Adam and Eve double top. Adam tops are spikes and Eve tops are much more rounded. You can see how USDCAD has struggled to make gains during that Eve top and then fallen like a stone once the buyers give up.
There’s another important pattern: the USDCAD price also penetrated the neckline decisively (again) this past week. There wasn’t much of a rally as it pulled back from the first penetration a couple of months ago.
Now USDCAD looks ready for a large downward move, perhaps one just as big as from the Eve top. Falling from 1.38 to 1.22 was a huge 1,600 pips. That’s a massive potential profit, especially when CADJPY should be even stronger thanks to JPY being even weaker than the dollar.
So how do the charts for GBPJPY and CADJPY look?
First GBPJPY …
… and now CADJPY …
Both are similar with ascending triangles and prices which have broken out past their necklines. These are both very bullish charts. But because we can’t be sure which of GBP and CAD will pop higher, it makes sense to take a long trade in both — and then sit back and see.
I expect we’ll see gains of several hundred pips in each pair, possibly four figures in each. A 1,000 pip profit in GBPJPY and CADJPY is potentially worth $10,000 each if you’re trading a full lot in each pair.
That would make for a fantastic start to 2018 if you’re ready to step up and start swinging for the fences.
Remember, you’re simply not going to survive as a forex trader if your method relies on a high number of small wins and few losses. The real money in the markets comes from picking the big winners and hanging on for the mega-gains.
If you’re uncertain about how to actually do this for yourself, I’m about to hold another LIVE 2-Day Bootcamp where I’ll demonstrate exactly how to make currency trades just like the ones I’ve outlined here. The Bootcamp includes my “Lazy Trader’s” 5-step execution plan that’s pulled in more than 9,000 pips in the last 12 months.