FTSE & Yen Ready To Play?

Playing FTSE on the Ceiling

The festive period often brings a surge of bullishness into the equity markets and you can either jump on board these moves or bet against them. One rally I definitely won’t be taking long right now is the FTSE Index which tested 6100 while the rest of us were eating & drinking our way to a New Year diet. 6100 hasn’t been breached since May 2008 and given the state of our economy, it has no business being there now.

A weekly time frame chart showing the FTSE 100 Index

The FTSE 100 Index. Can it break 6100? Strong resistance level and reversal divergence make this an interesting short.

The weekly chart above shows how significant the 6100 price point is, with a flurry of tests in the first half of 2011 finally being rejected with a violent two bar move down to 4791 in August. Price has been creeping slowly back up since then and a nice bit of correlated evidence that this test doesn’t have enough strength to punch through is the reversal divergence setting up on Stochastic.

I’ll be looking to take this short tonight (on the Daily time frame), but will have my stop well on the other side of 6100 (+ATR/2)  to protect from spikes – however if price settles above 6100 I’ll be out early.

JPY – Are We There Yet?

This isn’t so much a trade idea than some observations on JPY and the JPY pairs. The observation centres around the fact that we’ve been on one of the Bank of Japan’s rocket ship intervention rides since mid November and the Yen is surely getting nosebleeds by now? Much more of this and it’s going to get altitude sickness.

I’ve tried calling the top on these rallies before without much success, but that doesn’t mean I’m not going to try with this one too. Let’s look at the context as of right now:

A weekly chart showing US Dollar versus Japanese Yen

USDJPY: Weekly Chart

The BOJ first intervened at the end of 2011 to stop the Yen’s relentless strengthening against the Dollar and it’s been largely rangebound since. But any time the authorities think price has gone too low the BOJ pump billions of Yen into the market, driving a truck through good sense and decent technical analysis as the currency rallies for no sustainable reason. But that truck only has so much fuel…

The current USDJPY price has found some resistance at 88.50, an old support level from 2009/10 – a decent level as any to give us a bounce. Let’s have a look at the Daily chart:

A daily time frame chart showing the US Dollar versus the Japanese Yen

USDJPY Daily Chart: Overextension from the 50EMA far exceeds previous averages.

What I find compelling about this chart is the massive overextension from the 50 EMA at 540 pips. Visually compare that with how price normally interacts with the 50 and you can see why I think this is due a retracement. Topped with (albeit weak) Stochastic reversal divergence and I’m expecting Yen to strengthen against the Dollar soon.

You’ll find the same kind of overextension on all the JPY pairs right now, but they all rely on USDJPY weakness before showing they’ll react similarly. Have a look through them and see if you can find the better setups and let me know – any really good ones I’ll publish here.

Remember though – I’ve tried calling these tops before, but I’ve never caught one yet!

Happy trading!

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About TheDayTrader

My name is Adam. I'm a day trader. I've been trading full time, mostly Forex but stocks and indices too since 2009 and I love it. When I'm not trading, I'm writing about trading here and for trading magazines, learning to fly and enjoying country life in the Cotswolds with my wife, dog and chickens.


FTSE & Yen Ready To Play? — 2 Comments

  1. I like the Ftse weekly Setup but at the moment there is no price action showing any weakness on the lower time frames, daily, 4Hr or 1 Hr. the 1Hr is actualy kind of showing hidden bullish divergence on the stochastic?

    • You’re absolutely right, it isn’t an ideal setup because of the lower timeframes, however this is such a significant level that I’m willing to risk 1% that it’ll be respected. It could well go into consolidation for a few days before we know one way or the other, further muddying the waters. A safer entry will be to find lower timeframe reversal before getting in at the cost of getting in late if it does bounce.