Combine the exponential moving average with a trend estimate to identify changes in the direction of the market.
The Japanese yen (JY) is a major
currency traded worldwide by
corporations, institutions, banks,
commodity funds and futures
traders. The yen is traded 24
hours a day and most of the
world’s largest banks make a
two-sided market in the yen and
its associated derivatives. Small
traders, however, are constrained to trade the yen
futures on the Chicago Mercantile Exchange (CME).
The JY futures are traded from 7:20 am to 2 pm on the
CME and from 2:30 pm to 7:05 am overnight Monday
through Thursday, and 5:30 pm overnight to 7:05 am
Sundays and holidays on the CME Globex system.
While the CME yen futures trading volume is small
compared with total worldwide bank and institutional
trading volume, arbitrage keeps the futures
prices in line with the bigger markets.
The JY futures contract on the CME trades in the
quarterly cycles of March, June, September, and
December. The current active yen futures contract is
the JY December 1998. This is the CME futures
contract that expires on the second business day
before the third Wednesday of December 1998. The
JY March 1999 will become the active contract one
week before the December 1998 expiration day.
The yen is the currency of Japan. Each JY futures
contract is worth the dollar value of 12,500,000 yen.
On September 4, 1998, The Wall Street Journal
reported that the JY December 1998 futures contract
closed at 0.7584 dollars per 100 JY, making one JY
contract worth $94,800 = (12,500,000)(0.7584/100).
The JY future trades in units of $0.000001 per yen,
and thus, a move of one tick of $0.000001 is worth
$12.50 per contract ($0.000001 $/JY multiplied by
12,500,000 = $12.50).
Yen futures started trading on 1975. However, for
the purposes of this article, we will limit our study to
the price history from January 1, 1988, to today, using
a JY futures continuous contract. Since JY futures
contracts expire each quarter, a continuous contract is
constructed by switching to the active contract on
rollover day and back-adjusting the difference in prices
between the new contract and the old, thus creating a
smooth continuous contract.