News background and trading ideas on 19.09.2018

The main event of the external environment in the foreign exchange market can be considered the announcement of the results of the meeting of the Bank of Japan. The expected parameters of monetary policy, like its vector, have not changed. Accordingly, the Japanese yen did not receive support from the Central Bank. This regard, and in connection with the overall dynamics of the yen recently, we have a good trading idea.

In short, the essence of this is that until recently, trade wars have been bypassed by Japan and its currency. While many currencies have suffered losses in the foreign exchange market against the dollar (devaluation to protect against tariff attacks by the US - we already wrote about it in previous reviews), the Japanese yen even managed to grow. But a week or two ago Trump pointed a finger at Japan, in fact saying that Japan was next on the line. Thus, the yen will have to pay for months of tranquility. The scale of the devaluation of the Japanese currency is unclear until the end, but we can talk about a 10 percent drop in the yen. For example, in combination with the dollar, the yen can reach 120 or even higher. Confirmation of the idea is contained in the latest data on the trade balance of Japan, published today early in the morning. The total trade balance is 444 billion yen against 231-billion-yen last month. Other things being equal, only devaluation can allow it to improve its condition relatively quickly and efficiently.

Given that Trump has approved new tariffs against China (and China has already announced retaliatory measures), we declare that trade wars do not seem to disappear. Thus, the chances for the development of events according to the scenario described above are quite large.

So, if our idea is correct, another very promising deal appeared on the foreign exchange market. Thus, our recommendation is to sell the yen on all fronts. The pair USDJPY can be purchased already from the current with targets up to 120.

Their other important developments of today are the publication of inflation data from the UK. The growth of inflation will become a strong signal for the Bank of England in favor of further tightening of monetary policy. Thus, he will play into the hands of the British pound. Our position is still unchanged - we are looking for points for purchases.

We will continue to monitor what is happening in the financial markets and to inform you.