The Japanese risk aversion

US shares were sharply lower with S&P 500 fall by 4.5% amid continued global banking woes. USD/JPY  and EURJPY held firm, breaking their recent pattern of falling along with stocks. This may mean that we are seeing a change in the FX market response to the almost inevitable fall in worldwide equity markets. 

Why are USD/JPY and EUR/JPY holding up better than one would expect them to fall given the global shift toward risk aversion?

 

There seems to be one primary factor stated one analyst: Japanese retail investors have finally reversed their penchant to move money offshore and have turned positions to being net-long of JPY.  With yields in the US, Europe and and UK near all-time lows, the incentives for investors to stay short their native currency is way lower than normal.

Now that they have the risk-aversion trade on, and it is not acting as it typically does, some of those investors and traders are throwing in the towel and covering shorts in USD/JPY and EUR/JPY.  Human nature would suggest when the “dumb money” is on board, there is only one way for the JPY to go, and that is down.

A drunken finance minister, a prime minister with approval ratings in the single-digits, those factors may be contributing, but the late arrival of “Mrs Watanabe” to the trade (the market’s derisive nickname for Japanese retail investors) seems to be the most decisive. 

Technically, USSDJPY have been subscribing to candlestick chart pattern beautifully. Refer to the 15 min chart below. 

The top at 5:45 (3:45 GMT) was a shooting star that ignited a USDJPY  reversal that reached the bottom at    11:15 with two candlesticks pattern, the harami. About one and half hour later piercing patterns confirmed the reversal for an uptrend move that carried the USDJPY to the top at R2 level. At this level, a bearish harami pattern was formed which push USDJPY downward to close at  R1 level. For the day a white candlestick which it almost a opening bozu    ( there is no lower shadow i.e.  opens at the low) was registered. 

I entered my trade at 17:30 when USDJPY was in a consolidation phase with concentration of dojis. At this level the cross is resting at 50 period ema, R1, 38.2% fibo retracement and at double zero level of 92.  A break over the height of the dojis and the above levels confirm my vindication for a  buy.

My profit target is at R2 -92.37.