Temporary Insanity and USDJPY

8

I am not a lawyer but I believe one of the more fascinating aspects of studying the law is the concept of “Intent” to commit a crime. You see it is not really enough to commit a crime, the prosecutor must prove that the accused had “intent” or intended to commit the crime. For most people this idea seems ridiculous and they assume that the act of committing a crime is enough to prove intent. “If you didn’t intend to do it, then why did you do it?” would be the theory and that is fair enough.

But if you stop and think about it, don’t we all do things that qualify as accidents, that is to say committing an action that had unintended results? Forgetting the time and missing an appointment causing knock on effects when others are let down etc. This would be a temporary lapse of an otherwise sane person.

Add to this the properly insane who by legal definition cannot intend to do something illegal. Insane people do not know the difference between right and wrong and so therefore are presumed not to have the ability to have intent as legally required in a criminal charge. The law is fun isn’t it!

There is also temporary insanity. This person is deemed to be sane before the act and sane after the act – but “insane” at the moment the criminal act was perpetuated. Of all the legal defences I’ve read about, this one fascinates me the most.
Then there is mass market insanity and where we get to the interesting bit. The market is always right, is of course true, and certainly any time I have ever tried to reason with the Forex market it has not listened to me. Over long periods of time I totally subscribe to this idea but I also study Japanese Candlestick patterns which was originally a psychological study of price action and temporary insanity in 17th Century Japanese rice markets.

Personally I prefer to trade forex over longer time frames but then the market can be insane for long periods of time. Didn’t Keynes say something about “the market remaining irrational for longer than you can remain solvent”. So where am I going with this insanity?

Shinzo Abe’s government in Japan is conducting a policy that is virtually guaranteed to make the Yen substantially weaker. Starting last October the yen has lost ground relentlessly to the dollar as the Japanese government began its debasement of the yen. Today, however, the yen has regained more than 4 big points – from above 105 to 100.74 at one point and now trades in the 101’s – against the dollar. And all the while the Japanese have re-iterated their intent to proceed to debase the yen. My target for 2014 is 110-112 vs the Dollar but other sensible people are projecting as high as 200! I am not saying that the greenback is anything special. Let’s just say if both have fallen out of the ugly tree then neither looks pretty, but the Yen hit every ugly branch on the way down. It could just be that in times of uncertainty the Yen is seen as a safe haven. After all EURCHF is back in the 1.21’s so there would seem to be a risk off trade in forex at least with the Yen benefiting too.

So how long will this insanity last? I don’t know but I am looking for technical opportunities to get long. I think that the best trades are when the fundamental and technical analysis all point in the same direction, why not use both rather than be a slave to one or the other. The 200 day SMA held twice in October and once in November and sits patiently at approx. 100 vs the Dollar as does previous triangle resistance turned support on a weekly time frame. That’s not a bad entry point if we get to 100. If instead this market rises and we can close above 103.50 then perhaps that is a good entry level but the point here is that markets are simultaneously efficient but are also managed by humans whom as I have discussed are prone to bouts of insanity. USDJPY is case in point in my opinion.

Gary – www.fxlight.co

Get the 5 most predictable currency pairs

About Author

8 Comments

  1. Pingback: Temporary Insanity and USDJPY | myfxequipment

  2. I bought UJ today at open price followung QuantStation – the stop is 100.53 – i’m staying in the market from 3 to 4 days.

  3. Pingback: Temporary Insanity and USDJPY - James Invest | James Invest

  4. Pingback: Draghi pushing back on euro strength | Financial Markets

  5. Pingback: Forex Weekly Outlook March 17-21 | Signals News

  6. Pingback: Temporary Insanity and USDJPY | Financial Markets

  7. Pingback: USD/JPY Forecast March 17-21 | Signals News