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One of my posts yesterday put you on notice about a possible bullish reversal hammer candlestick being printed on the Dollar/Yen daily chart. Today, we can see that the reversal is coming to fruition.
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Some of my readers pointed out that other Yen crosses are equally, if not more, important than the Dollar/Yen relationship. I consider that argument to be debatable. However, you will see below that I have included charts of the Yen versus both the Euro and Aussie Dollar. In both cases, we have the setup of a long multi-month base, not to mention a possible inverted head and shoulders bottoming pattern. If both the Euro and Aussie can hold on here, the right side of these bases will have been completed. This would set us up for a sustained period of Yen weakness. Be sure to check in on these currency crosses, as the inverse relationship between the fluctuations in the Yen versus global risk appetite cannot be overstated.
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Why would weaker JPY be all of sudden risk positive when a stronger JPY in recent days hadn’t been risk negative? SPX is down 0.5% and JPY is down 0.5% as well. Love your work Chess, but think you are off the mark here. USD strength and weakness is new risk loving/averse currency. JPY is by-product of US rates at present. US yields are up and therefore JPY is weak.
Weaker Yen = Carry Trade back on. Just look at May 6th of this year, and you will see how significant a strong Yen is to weak equities.
Carry trade’s been holding up without the yen– see DBV.
Also: trade of the week– YCS
Which carry trade? Japanese retail investors moving offshore to buy high yielding assets or global corporations borrowing in JPY to invest in Equities and high yielding currencies? If I am a US based investor, I would rather borrow in USD and avoid JPY volatility in my carry trade investments. I agree that on May 6th, Yen/Risk negative correlation was strong, but it seems the market has subtlely shifted since then with USDJPY exchange rate not being such a good tell of risk seeking or averse behavior.
Fair enough. I appreciate the feedback. I suppose time well tell. I just have a hard time believing that equities will see a fresh leg down, if the Yen weakens.
Agreed. Perhaps we will see a scenario where USDJPY stays somewhat static while yen crosses sell off. Time will tell. Thanks for your responses/posts. They are very much appreciated !!
Thanks for reading and for the feedback.