Larry’s Note: While much of the market’s focus is on the Fed’s upcoming meeting, there’s another major event taking place next week…
And the combination of these big events could lead to an incredible trading setup in a very short time.
The key is to get ahead of the curve and be in position before these events take place…
That’s why I’m holding a special Fed Decision Advance Warning briefing tomorrow at 8 p.m. ET. I’ll show how you can profit from next week’s opportunity, including the ticker to use.
For all the details, simply RSVP with one click here.
The Federal Reserve’s meeting kicks off a week from today. Its interest rate decision is due on Wednesday, September 17.
Stock investors have been hanging on the edge of their seats, wondering about the size of the expected rate cut.
But the decision has far wider implications than most folks imagine…
It will also have a major impact on the U.S. dollar (USD) and its relationship with other currencies. It comes at a critical time for the USD, which has been struggling to regain momentum since bottoming out in early July.
Despite that weakness, we were able to catch an up move in the USD against the Japanese yen recently. And that enabled Currency Wizard subscribers to bank some tidy profits.
So today, I’m going to show how that trade played out… and why it could be just the start…
Forex Trading Profits
Currencies are the biggest market in the world. Trillions of dollars in value change hands every day. This market also has little to no correlation with stocks.
So you can profit from foreign exchange (forex) trading no matter how stocks are performing. That’s why I’ve traded forex for decades…
The key to understanding forex trading is that you are essentially backing the strength of one currency against another. So, for example, if you thought the USD was going to strengthen against the yen, you would buy the USD/JPY pair.
And that’s what we did with the trade we’re looking at today…
USD/JPY bottomed out in late April. The pair rebounded higher as the Relative Strength Index (RSI) rallied from oversold territory (see the bottom section of the chart).
USD/JPY Spot Price
Source: eSignal
After grinding higher, the pair’s uptrend was confirmed by the 10-day moving average (MA, red line) crossing and tracking above the 50-day MA (blue line) in June.
That up move began to accelerate in late July. But it reversed sharply on August 1…
That came off the back of disappointing nonfarm payrolls (NFP) data for July, along with heavy revisions lower to job numbers from the previous couple of months.
That put a rate cut on the table…
Currencies typically increase in value when interest rates rise, as international investors buy that currency to access the higher yield. The reverse is true when rates drop.
Yet USD/JPY’s sharp sell-off looked overdone. It also coincided with the RSI testing and holding support (green line) – a key level.
Plus, on the other side of the equation, fears over the impacts of tariffs and political instability added uncertainty around the Japanese economy.
So we bought the USD/JPY pair to capture an anticipated resumption of the underlying uptrend…
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Our USD/JPY Trade Handed Us a Win
As you can see, the trade took a while to pay off. Initially, the pair got stuck in a sideways range.
Take another look:
USD/JPY Spot Price
Source: eSignal
Yet two signals on the chart were key to staying the course…
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Despite continuously peppering support, the RSI didn’t sink below that level.
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The down moves in the pair – including the pivot to a likely cut at Jackson Hole – didn’t sink below the 50-day MA (another bullish signal).
Then Deputy Governor Ryozo Himino commented last week that the Bank of Japan was in no hurry to raise rates. That finally saw the yen slide and propelled our position further into profit.
Our trade reached our take-profit target, and we exited the trade for a 200-pip profit. That equates to a $1,344 profit for anyone trading a standard lot position size.
Trading currencies gives you something to trade when you’re worried about stocks falling heavily or when they’re stuck in a range, heading nowhere. That’s valuable right now, given my concerns about stocks being overvalued…
And with the Fed just about locked into cutting rates next week, there should be even more opportunities ahead in the forex space…
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
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