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Forex Technical Analysis



Introduction

The Forex market (or currency market) is considered to be a very unstable and fluent market among other financial markets. In fact, currencies are valued and marketed in duplets. It is profitable to be acquainted with the changes and movements of the duplets, especially from an investment viewpoint. Thus, it is crucial to understand whether these duplets change in a similar or opposite course. When the interrelations between the duplets and their changing schemes are noted, the knowledge can be utilized in order to supervise and monitor the general investment denunciation. When a person faces the possibility to trade the currency market, this person frequently finds him/herself choosing between two options: pro-dollar or anti-dollar.

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The U.S. dollar is a major constituent of more than 85% of all currency exchanges and transactions; therefore, it has long been the initial factor of all oscillations in the exchange ratios. The majority of traders are supposed to decompose the upcoming trend and course of the dollar by utilizing radical or technical analysis or a conjugation of both methods. Nevertheless, the quite limited number of people recognizes that a period of the year may also perform a crucial function how the U.S. dollar changes in regards with other currencies. The current study will utilize technical analysis, which stands for the analysis of past price changes via the usage of indexes. The current paper will analyse the Forex financial market from the viewpoint of comparing between the U.S. dollar and the Japanese yen in the period between 2000-2014.

The Forex Financial Market

There are plenty of methods to perform this analysis with the help of technical indexes, which allow analyzing a price from various perspectives. Forecasting of the upcoming changes in the markets is believed to be a major factor to earning money in trading; however, it is quite complicated to put this idea into action (Dicks 2010). Professional Forex traders understand that the process of trading currencies claims for analysing the issues and concepts beyond the world of the Forex market. It is crucial to cognize that currencies are changed by numerous agents, which include procurement and requirement, state affairs, interest ratios, economic development, etc (Furgang 2011). More particularly, since economic development and exportation are openly connected to a state’s internal industry, it is normal for some currencies to be seriously connected with outgrowth values (Dicks 2010).

The facts demonstrate that the topmost three currencies that have the closest connections with outgrowth are the Canadian dollar, the Australian dollar, together with the New Zealand dollar (Furgang 2011). Two other currencies, which are also influenced by outgrowth values, but demonstrate a fainter connection, are the Swiss franc and the Japanese yen. The knowledge concerning the facts which currencies are connected with what outgrowth may assist traders in understanding and predicting particular market changes. The Japanese yen is believed to be the third most frequently marketed currency around the globe, following the US Dollar (the first place) and the Euro (the second place) (Goyal & Goyal 2010). The currency is the public currency in Japan. This state has the third biggest public economics in regards with Nominal GDP (Gross Domestic Product). Japan has an exceptional economics, which is featured by a great level of manufacturing and exporting of vehicles and electronic products. The country is typically believed to be one of the most advanced and original around the globe (Goyal & Goyal 2010). Due to the current increasing of Chinese and South Korean production, Japan has started to concentrate on high technology and accuracy products (Goyal & Goyal 2010).

The Analysis of the U.S. Dollar and the Japanese Yen

As a matter of fact, the USD/JPY duplet is assumed to be among the most favoured Forex currency duplets due to its comparative fluidity and normally decreased expansions. While analysing the connection of the US dollar to the Japanese yen graph, it is crucial to understand that the latter is seriously subordinate on exporting in the specific and universal financial markets altogether (Dicks 2010). Therefore, an unstable market can complicate the process of effective trading the Japanese yen-grounded duplets. Regardless of this fact, the Japanese yen continues to be a highly admitted Forex duplet for performing trades, which has facilitated and sustained the popularity of the USD/JPY as a duplet. Performing trades is known to be a specific strategy in which a depositor markets a particular currency with a comparatively decreased interest ratio and utilizes the costs in order to acquire a distinctive currency having a greater interest ratio. A marketer who utilizes such strategy and technique tries to seize the contrast between the ratios, which can frequently be significant, relying on the quantity of the ratio capital utilized. On the other hand, the US dollar is the most seriously marketed currency across the Forex markets, with a GDP of approximately $14 trillion, which makes the U.S. the biggest state economics around the globe. Having these facts in mind, the Forex trading evaluation of the US dollar and the Japanese yen FX may bear perfect possibilities for earnings of both fresh and professional marketers who cognize the reality of market tendencies and perceive how to use every currency to their benefit in the investment (Furgang 2011).

Firstly, it is important to remember to separate the noise of indicators. The majority of marketers may not understand that there is no better method while analyzing previous price conduct than to analyze the price changes itself except the noise of constituents. While observing a price merely, particular schemes and patterns noted as seasonality may be observed. Seasonality is an anticipated alteration, which reduplicates annually at the similar or same period in time (Lien 2014). For instance, traders may not have cognized that in eight out of the last 14 years (between 2000 and 2009), the U.S. dollar decreased against the Japanese yen during the month of August. There are no avouchments that this classical pattern will reiterate itself. However, it is crucial to remember that once a chart has been reiterated 70-80% of the time analysed, it appears to be statistically important and demonstrative (Lien 2013). The above-mentioned information can be very insured data for those people who are trading.

Therefore, the analysis demonstrated that July is a positive month for USD/JPY. Thus, one of the most enduring illustrations of seasonality is the July during USD/JPY transactions. In 80% of the transactions (which stand for the eight years out of the 2000-2009 analysis), USD/JPY finished the month of July with larger ratios in comparison to the figures that started the month (Lien 2013). It is complicated to identify an accurate cause for why USD/JPY demonstrates a tendency to change in such a way during July. Nevertheless, this pattern may be connected to the ending of the first quarter in Japan or the starting of the second half of the year in the United States (Lien 2014). Despite all reasons, such an example of seasonality is quite strong, while being the one, which is worth bearing in mind if a marketer observed a number of concise USD/JPY marketing during July. The appearance of seasonality might embolden the trader to take a less-than-usual concise posture or to elude prolonged USD/JPY trading during this period of time (Lien 2013).

All years in the period between 2000-2009, except 2007 and 2009 demonstrate a positive outcome of USD/JPY trading during July. The highest percentage is observed in 2000, which stands for 3.20%. The second highest indicator is observed during 2004 (2.37%). As 2006 demonstrated a low percentage (0.26%), it was obvious that the scheme will change; however, this alteration is drastic. The indicators fall up to -3.41% in 2007 (Lien 2014). This is the worst year for the USD/JPY traders. Nevertheless, the following year demonstrated quite positive outcomes, as the ratio raised to 1.60%, which can be considered as unexpected in a comparison with previous year. Seasonality became stronger in the period between 2006 and 2009, as there were two years with an elevated percentage and two years with decreased percentage. The year of 2009 also demonstrated a decreased ratio of -1.74% (Lien 2014). Nevertheless, this month is not the only month that demonstrated a clear seasonality pattern. The following month of August had a strong level of seasonality as well. Thus, the gains made during July can be elevated during August. Thus, there is a solid example of seasonality in USD/JPY during the month of August as well.

A serious stint of the profits that were earned in July increased during August. In fact, an analysis of the yen’s behaviour during a calendar year outlines that August has a tendency to be the halest month for the Japanese yen in all directions (Lien 2013). That practically means that all other currencies, including the U.S. dollar, the Euro and the British pound, tend to decrease against the yen during August.

The 2 years out of the period between 2000 and 2009. Only 2006 and 2008 demonstrated a positive ratio for the US dollar. All other years stand for the US dollar fall against the Japanese Yen (Currency analysis 2014). Thus, another pattern can be noticed, particularly the one, which shows that after the year of decrease comes the year of increase.

USD/JPY ratios seriously had decreased before 2012 on the Forex financial market. Despite the fact that 2012 depicted the worst ratios for the whole ten-years time period, it was a time of a new strong increase, which reached the halest level of ratios of 2008 in less than two years (Currency analysis 2014). It may be explained by the fact that the Bank of Japan has augmented the acquirement of the Yen, hoping to reverse Japan’s deflation tendency to inflation (Currency analysis 2014). With the help of redoubling the available money margin, the Bank of Japan is discrediting the Yen and stimulating exporting while simultaneously raising values of imports, particularly for outgrowth. These factors will most distinctly influence the USD/JPY value (Currency analysis 2014).

The Yen formulates a reinforcement line at the highest point of its ascendant ripple. It is considered that currently, the value might deduce an alighting formation in the direction of the level of 113.97 and afterwards retrace 115.00 levels (Sayadov 2014). In the case when afterwards the Forex market devastates such a reinforcement diapason downhill, the duplicate will protract reaching the level of 109.00. On the other hand, if the level grow upwards, then the Forex financial market will have to broaden this diapason up to 117.00 (Sayadov 2014). A basic technical analysis of the USD/JPY currency duplicate requires beginning with a large capital representation, decade-lasting overview of the cost of the Japanese yen. The 21st century ailment of substantially zero increase in Japan’s economics together with a culture of provision costs, even in a case when it was making zero interest, originated in a 10-added year period of stable consolidation of the yen (Sayadov 2014).

The past 7-year stage of the ever halest yen in the period between medium-2007 into the majority of 2012-2014. On the other hand, the designation for the second attempt of Prime Minister Shinzo Abe leading the Japan’s government in December 2012 provided Abe with the possibility to execute his policies known as “Abenomics” shaped from financial impetus and financial alleviating (Abenomics needs a weaker yen: will the Forex markets play along? 2014). Therefore, the execution of the Abe’s courses resulted in a strong market for the Japanese stocks accompanied with a 22% mitigation of the yen in the Dollar terms. This is actually demonstrated as a bigger ratio for the U.S. dollar and Japanese yen currency duplet (Currency analysis 2014). Those Forex financial market traders who seized the ‘Abenomics’ feverishness were able to strike the heart of trading of a whole decade.

The yen reached practically a direct-line starting from 80 and getting to 95 (Abenomics needs a weaker yen: will the Forex markets play along? 2014). Moreover, it took only a limited number of lateral trips towards the level of 102 in less than 6 months (USD/JPY exchange rate 2014). Afterwards, such a trading possibility has overpassed, and the facts demonstrate that the nearest future of USD/JPY relies initially on what occurs in the Japanese economy as such (USD/JPY exchange rate 2014). The original advantage of a less strong yen will allow getting elevated earning for various Japanese organizations that produce commodities in Japan and export them (Abenomics needs a weaker yen: will the Forex markets play along? 2014). Marketing abroad in foreign currencies ends off in greater earning, which is bigger in the yen appellation. Such greater advantage proceedings result in a greater stock values, which should provoke the yen to become weaker as well (Currency analysis 2014). Superior export earnings amounts are believed to be a major objective of the Abe authorities and an initial cause why the Japanese administration will stimulate politics in order to further deplete the currency (Sayadov 2014).

The economic increase outcomes, which strike or preponderate economic experts’ ratings and administrative objectives, will depict that Abenomics is operating and should protract to deplete the yen and provoke the overall yen to dollar exchange ratio superior. The Japanese economics increased by 1.6% during 2013. Nevertheless, the ratio decelerated to approximately 0.3% during the fourth quarter (Sayadov 2014). The stronger levels of the Gross Domestic Product increasing accounts should have a straight influence in order to deplete the yen. The last and current leisure elevation figures are supposed to provoke the government together with the Bank of Japan to protract and probably expedite fiscal relieving. During the previous year, the Bank of Japan entrusted to clatter approximately $600 billion into the economics. The USD/JPY ratios are changing and moving markedly higher during 2014, and thus, it is necessary to control the process. Previews from the Bank of Japan regarding further financial impetus should provoke the yen faintness in the Forex financial market (Sayadov 2014).

Conclusions

Despite the fact that the examples of seasonality in the Forex financial market are sparse, being competent of such seasonality may assist marketers in becoming more in the wake of the view for the possible currency trades. The seasonal schemes and patterns will not always reduplicate; however, the possibility to be aware of all possible tendencies can assist the Forex marketers in understanding where the possibilities exist. The current technical analysis of the financial market demonstrates that there are instability and fluctuation in the relationship between the U.S. dollar and the Japanese yen. The analysis demonstrated that there are two major patterns of seasonality, including the repeated pattern during July and August. In the majority of cases the changes are provoked by the Japanese government in an attempt to strengthen Japanese economics.

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