The USD/JPY continues to deliver a masterclass in patience for longer term traders, with the long term consolidation phase continuing once again last week, as the pair closed with a narrow spread down candle on the weekly chart, ending the futures trading session at 101.30. This phase of price action has been in place for several months, since the start of the year, and at present, shows no signs of breaking down just yet, and in many ways demonstrates two things when considering this pair. First, how difficult it is to trade on an intraday or short term basis, and leading on from this, that whilst the USD/JPY may be waterlogged for the time being, there are plenty of other excellent trading opportunities in the yen cross pairs such as the GBP/JPY or the EUR/JPY. This is perhaps one of the many concepts of forex trading that new traders often struggle to understand, which is simply that the behaviour of a currency in one pair, may not be reflected in other currency pairs where that currency is quoted. The foreign exchange market is unique, in that any currency can be bought or sold against any other in a myriad of ways.
The forex market is not one dimensional. A single chart may indeed show the sentiment for the currency, in that particular pair. However this does not mean that the same sentiment is reflected in all the other associated pairs. If it is, then sentiment for the currency is universal and buying or selling is then reflected globally. However, what we often see as forex traders, is a currency being bought in one or two pairs, moving sideways elsewhere, and perhaps even being sold in others. This is what makes forex trading both complex yet fascination. Understanding these relationships is one of the keys to success and a simple currency matrix will help not only to highlight lower risk trading opportunities, but also to view market sentiment globally. If the currency is being bought or sold consistently both in the major and cross pairs, then any trading position will carry a lower risk since you are trading with the flow of money, universally, and not simply on one of your favourite currency pairs.
For USD/JPY traders the message is clear – focus on other pairs for the time being, and return to this pair, once a breakout is complete, from which a new trend will then begin.
By Anna Coulling