FxWirePro: Yen might gain another 500 pips on weak Dollar and risk aversion

Dollar index, which is value of Dollar against basket of currencies, down -0.6% so far on first trading day of the year, trading at 98.15. Yen is leading the gain against Dollar, up almost a percent as equities are sold off sharply. Yen is currently at 119 per Dollar.

According to our estimate at FxWirePro, Yen might gain another 500 odd points against Dollar going ahead as we expect risk aversion to somewhat intensify in 2016. Moreover, punitive actions by Bank of Japan (BOJ) in its final monetary policy meeting of 2016, post FED hike has been truly disappointing and pose considerable doubts that BOJ may not fire another Bazooka. In last meeting it has increased its asset purchase target by ¥ 300 billion to purchase ETFs, which is very small compared to current package of ¥80,000 billion Yen per annum.

However, slowdown in risk aversion might also lead to recovery in Dollar, so stop loss for this trade is likely to be on the higher side. However, even with large stop loss, risk-reward ratio is above 1.

Trade idea

Sell USD against Yen at current rate and at each rallies of 100 pips targeting 114 and stop loss at 123.8 per Dollar.