Not too long ago, the Japanese yen was looking weak across the board against the other major currencies.
But more recently, the tables have turned.
That means there’s potentially lots of profit ahead for those willing to short JPY pairs. Especially the one JPY pair that’s the granddaddy of them all. (You could have made $50,000 for every $1,000 in this one if you’d caught its previous huge fall in 2016.)
I’ll tell you which pair that is in just a moment.
But first, you might be confused about “going short” a currency when I’ve just told you JPY is looking strong. Aren’t you supposed to short weakness, not strength?
It has everything to do with the construction of a currency pair. For USDJPY, the USD (US dollar) is in the base position. The JPY (Japanese yen) is in the “cross” position.
The USDJPY pair will rise if one of three cases is true:
USD is strong
JPY is weak
Or both at once (these are the really explosive moves)
And going the other way, the USDJPY pair will drop if one of these three cases is true:
USD is weak
JPY is strong
Or both these things happen at once
Since JPY is looking strong against most other major currencies right now, going short JPY pairs is the way to bet in the near future.
The yen is looking weak across a variety of competing currencies, but let’s start by looking at USDJPY first. For now, I’ve highlighted just a couple items to keep things simple. We’ll look at USDJPY in more detail in the next chart.
See the double top — otherwise known as an M top — in 2016? That came at the end of a five-year bull market in USDJPY which extends way off to the left of this chart.
A double top (this one is a near-perfect M top) marks a reversal in trend. You can see the bull market finished with that double top. It’s been in a downtrend ever since, although the price did rebound sharply before losing momentum again. Notice that the rebound never came close to setting a new high? It barely made it to the bottom of the double top pattern before losing steam.
That’s very bearish for the dollar against the yen.
Especially when we look at USDJPY more closely in this chart. Again, this is a weekly USDJPY chart:
The M top is also the “head” portion of a longer and larger head and shoulders top. A head and shoulders pattern (a lower left and right “shoulder” bracketing a higher central “head”) is very bearish.
USDJPY collapsed as this pattern was completed, and the rebound didn’t penetrate the neckline of that pattern for more than a couple of weeks before rolling over and heading south again.
That recent weakness can be traced out in a descending triangle pattern. That’s yet another bearish pattern.
USDJPY tried to break out of that bearish pattern with a fakeout to the upside which subsequently failed … it was a bull trap.
There’s nowhere to go but sideways for another week or two and then down — hard.
I expect USDJPY to fall to at least parity (100 yen to the dollar) and ultimately lower. That’s about 900 pips from where it is right now, or $9,000 for every $1,000.
I feel especially good about this trade when we consider the USD itself is looking pretty weak. Here’s what the US Dollar Index looks like right now:
The head and shoulders pattern here indicates some bearish trends ahead for the dollar. It’s poked its head above the neckline for now (there might be some upward momentum remaining for another week or two) but the power of the downtrend is going to assert itself very shortly.
We can see JPY strength in several other JPY pairs too.
So let me show you a few good prospects so you can see why betting on JPY strength by shorting JPY pairs is a good bet for the weeks ahead.
Wouldn’t you know it? There’s yet another head and shoulders reversal pattern in EURJPY. It’s not as distinct as the one in USDJPY but it’s definitely there.
There’s also something called a reverse triangle on this chart. A reverse triangle is also known as a megaphone top because it looks like a megaphone a cheerleader, coach or old-time film director would shout into. The height of the megaphone top/reverse triangle is an indicator of how low the near-term drop is likely to be.
That means we’re looking at a drop to 132 first (the base of the megaphone/reverse triangle) and then ultimately lower to about 126 in EURJPY. That’s about 700 pips, just to start.
And now here’s another JPY pair showing weakness: CADJPY (Canadian dollar against the yen) also shows a long term head and shoulders pattern. This time the retracement came back to the neckline of that pattern and failed to break it.
In fact, it made a double top (another near-perfect M top) and is poised to head lower fast.
I think this pair could hit 80 at a minimum, and possibly lower than that — into the 70s. That gives over 600 pips downside from where it is right now.
By now you’re seeing just how comprehensively weak the yen is against three other major currencies.
So what about the biggest and best of all the JPY pairs for our forex trading purposes?
The granddaddy of all JPY pairs is GBPJPY (the British pound against the yen). It’s the most volatile and offers the biggest potential for huge gains.
Not only do we have a clear head and shoulders reversal pattern here, we also have some very large key reversal bars during the subsequent downtrend.
A key reversal bar is when the market makes a new high but collapses to close at the low on a long bar. I’ve highlighted a couple of those for you.
Not only that, the most recent week is very bearish even though it’s not a textbook key reversal.
GBPJPY is looking very vulnerable right now. It never came close to managing the kind of rebound we saw in USDJPY, EURJPY, and CADJPY.
See how it dropped from 175 to 125 in 2016? That’s worth $50,000 for every one lot contract you held short on $1,000 margin.
Those days might be here again. At the very least I expect GBPJPY to drop from 151 down to 140. That’s 1,100 pips or $11,000. We might even see another 5,000 pip crash similar to 2016.
So the profit potential in GBPJPY is bigger than any of the other pairs.
There’s a negative to this, of course. GBPJPY’s volatility means the swings you’ll see will be very violent. So you’ll need to allow for wider stop losses and/or trade a bit smaller as compared to other JPY pairs.
That might be a bit too intimidating for you if you’re a beginner to forex trading.
So if you need some guidance on how to manage these kinds of trades — especially if you’re new to forex and coming from the stock market following the recent painful crash — then let me help.
I’m preparing an event to show you exactly how it’s done.
My LIVE 2-Day Bootcamp is where I’ll demonstrate exactly how to make currency trades just like the ones I’ve outlined here, including my “Lazy Trader’s” 5-step execution plan that keeps pulling in one winner after another.
You see, we made over 9,000 pips last year. That’s $90,000 for every $1,000. This Bootcamp will show you exactly how we did it.