Big day in Japan today- election. Ruling party, Liberal Democrats, have been traditionally conservative and pro-business, managed to stay in power for over half the century. With the results already in, this era is over. Challenging party, Democratic Party of Japan, has been announced the winner, claiming over 300 seats in the lower house of the parliament. Clear majority. This is sure to bring some important changes in Japanese politics, both internal and external. These, in turn, will have impact over financial markets, including currencies. I will not be guessing how the Yen is going to react and leave it to others. First few hours after the open are for observation only.

Week ago , or so, I looked at a possible trade in GBP-CHF. That trade didn’t happen, price moved down without much hesitation, never reversing enough to trigger my buy order. And that order was being moved every day, following the price ever lower. One day it came close to being filled, but that was it. By now the purchase level has dropped over 200 pips  from original post and is at 1.7311. Chart below illustrates how the orders were changing.

second top it formed in the neighborhood of 1.8100 three weeks ago. My original idea for a trade here was based on a daily chart support at aroud 1.7450. I expected a bounce there, not necessarily a reversal, but rather a “reaction”. Didn’t happen, bear was too strong and went right through that zone, which included 100SMA.  At least avoided a loosing trade. Currently price is near another support level, where chances for a move up are increased.

In addition, last couple of daily bars created what is called an “inside day”. Some traders swear by them, using this one pattern as a cornerstone of their trading. Inside days are very popular and mentioned prominently in trading literature.  Practitioners of candlesticks might recognize it as a “harami cross”, also a reversal pattern. I would classify it as a “weak” formation, because of the shape of first candle. It is not a “text book” example, but in real life things rarely are. Besides, the broad sell off in Pound could be overdone by now, and general GBP rally is probably in order. It doesn’t have to an allm out reversal, just a few days of action in opposite direction. I think chances are good for a 200-250 pips leg up.

Hourly chart could used for a more precise entry, with a short term reversal pattern. Entry level is above 1.73, just like the daily graph suggested, but timing could be improved here. One could wait for the price to attack most recent high, then pull back and try to enter on next move above 1.7300. This carries a risk of missing the move, IF first breakout attempt is successful. There are always some trade off’s  in trading. “Trade off’s in trading”- this sounds funny, but what the hell.

Tomorrow, Monday, I will not be posting an update here. Too many other things to do. But I might take a look at Yen pairs later on today, in the evening my time. It should interesting to see JPY reaction, if any, to election results. Should there be out of ordinary activity, it will likely settle down after few hours, possibly leading to Yen opportunities for the rest of the day. We’ll see.

Mike K.