The Japanese economy is the third-largest national economy, and the Japanese yen (JPY) is the third most commonly traded currency after the U.S. dollar and the euro.
Since 2012, the JPY has weakened from 75 yen against the dollar to just over 120 yen against the dollar today. This month has seen the yen weaken by 5% so far.
The question you may be asking is: why is this happening?
The Context: Japan is usually considered one of the most innovative nations globally. It has a unique economy with significant manufacturing and export of automobiles and electronic goods.
With the rise of manufacturing in neighboring Asian countries, Japan has recently shifted from manufacturing to focusing on high-tech and precision goods.
Forex Opportunities: When it comes to the ups and downs of a currency, it will always be challenging to pinpoint the exact reason behind price action. Wanting meaning is natural but is counterproductive as an investor. It is easy to get bogged down in the nuts and bolts and as a result miss out on a high-probability opportunity unraveling in front of you.
The questions that actually need answering are:
- When is the right time to enter into a currency pair?
- What is the profit potential?
Like stocks, I look for currency pairs that are breaking out from a long-term area of consolidation and have ample space to trend before the next level of support (in a bear trend) or resistance (in a bull trend).
With the JPY weakening across the board, I compare the charts of all currencies paired against the JPY and narrow them down to the one or two currencies that offer the best potential to profit. My list includes the AUDJPY, CADJPY, CHFJPY, EURJPY, GBPJPY, NZDJPY, SGDJPY, SEKJPY and the USDJPY.
I have the monthly timeframe of the USDJPY below. Even though price is breaking out from a long-term area of consolidation, there is little space for price to move until the next area of resistance, marked below.
I have the monthly timeframe of the GBPJPY below. I have also marked the next level of resistance. The fact that price is breaking out from a period of consolidation that dates back to 2016, the GBPJPY has a much higher chance of being entered into my portfolio than the USDJPY.
As with stocks, I keep investing in currency pairs simple. If the chart has a good history of performance and then answers the above two questions, that is enough for me to consider a potential position instead of getting bogged down in fundamentals.
If it fails, risk management and exit management come into their own. If it moves in my favor, I compound.
Less is always more!
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