The Japanese Yen
Several weeks ago reader Fu Manchu politely suggested that "he just didn't see it" with regards to my short Yen position. Several months back, it was looking that I was correct in my "call" that the Yen was going lower, but here we are with risk rising and investors avoiding risk, and well the Yen is rising as it appears the carry trade that funded the risk taking is coming off. Anyway, back to Fu and his suggestion of "Guy, take another look". I have, so thank you for the suggestion, and it just might be time to pull the plug on this trade. Here are my technical thoughts.
Before looking at several charts, let me state what I have stated all along: the Yen has the technical characteristics of an asset poised to undergo a secular change of trend from up to down. This fact alone keeps the Yen on my radar screen even though this trade - not the best choice of words for an investment with a secular time frame - is not working out.
Figure 1 is a weekly chart of the USDJPY cross rate, and key pivot points are identified with the black dots. Key pivot points are those areas, where buying (support) and selling (resistance) are likely to occur. Several months ago, the weekly close over the 3 key pivot points was reason enough to expect a secular change in trend. While price has yet to close below the most recent key pivot point at 88.092, it is trading out of the rising up channel and it seems likely that it will test this key pivot in the future. A weekly close below this key pivot point is bearish for the USDYEN -i.e., higher Yen relative to the Dollar.
Figure 1. USDJPY/ weekly
But the vehicle I trade is the ProShares Ultra Short Yen (symbol: YCS) which is a 2x leveraged product, and as we can see from this weekly chart in figure 2, price is likely to close below the most recent key pivot. This is bearish, and this key pivot, which is at 19.84, is resistance.
Figure 2. YCS/ weekly
We can break this down even more by looking at the daily chart of the Currency Shares Japanese Yen (symbol: FXY). See figure 3. All those key pivot points or areas of resistance have been taken out over the past month. A gap above 109.46 is my point to cry "uncle". This level is support and if the Yen is going higher, then this level should hold.
Figure 3. FXY/ daily
As I believe that the Yen will go lower over time, thus it will remain on radar screen. I will reconsider this option in the near term if the key support level at 109.46 fails to hold. Reversals and fake outs do happen.
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