Yesterday I posted a channel breakout trade on the USD/JPY in which I sold the pair at $107.54. Dollar has been on the march across the majors so Michael wonders if I have lost my marbles by selling the Greenback as he comments:

Hi Ryan. Good to hear from you again. But this trade setup u made today makes me wonder. Considering the fact that dollar is very strong across board, then what is logic that will make this pair go against the dollar. Just want to know if u have any other thought that will validate this trade. Thanks

I realize this trade is contrary to the current trend but I’ll layout my logic in this post and you can sit back and watch the fun as it unfolds.

First, the big picture of USD/JPY weekly chart is a downtrend. The recent bullish Dollar move has really been a pull back into the 50% Fibonacci level of the larger Dollar sell off.

Second, the daily chart channel has failed. A second channel has formed which is weaker than the 1st and it broke out of the 1st channel last week. While the pair recovered following the bailout news it has broke down and closed below the channel yesterday and today. This is a bearish technical sign in my point of view.

Third, US Fed Fund Futures have begain pricing in a 19% chance for a .25 bp rate cut.

Fourth, regardless of Dollar strength the fundamental picture for the U.S. is terrible and I believe it is starting to catch up to the Dollar bulls.

This will be a longer term trade than I usually post. I expect to have this open at least a week, probably two.

Best of luck,

Ryan