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22/11/2016 – The Yen Party is well and truly over

Hello traders,

As most of you will know, when it comes to long-term trading I like to by strength and sell weakness. Therefore about a year ago I stated that I thought that 2016 would be the ‘year of the Yen’ as I felt that it would a) be a volatile year and b) the market didn’t believe that Abe & Kuroda could achieve their financial goals. This would all point towards Yen Strength for 2016

Well certainly for the first 9 months of the year it was a great trade to be long Yen (and short GBP, one of my other core positions for 2016.)

However all good things come to an end and, for the time being, so has the Yen strength trades.

You can see in the weekly charts above that the trend has come to an abrupt end in the last few weeks. Interestingly I was telling clients back in September that I believed the Yen Strength trade had run its course, and I thought I would share that with you now.

What we have here is the weekly chart of the USDJPY for this year and part of 2015. You can see that it was a strong downtrend (but not without its hard rallies). All year we had a series of lower lows and lower highs, good solid price structure that confirmed the down trend.

We also had a significant psychological number in 100 ahead of us and on 3 occasions price bounced off this level – it was clearly the line in the sand that the BoJ had hinted at.

The STAM was starting to hint that the Yen was weakening, and the rhetoric coming out of Japan was that the BoJ were prepared to do whatever it took to weaken the Yen. So when price closed above the 20MA that was my first sign that the trend was changing (its first close above the 20 MA for 9 months btw). We then had the 20MA turn from acting as resistance to turning as support, followed by price closing above the last lower high – a change has happened.

After that we were just waiting to see how the price responded to the US election vote and its been a fantastic move. After dipping down to re-test 101 we’ve traded all the way up to 111 (everyone knew that 110 would be too much of a magnet).

I’ve mentioned in the past that watching how price responds around the weekly and daily 20MA is an important indicator of the potential of a trend to change or to run out of momentum.

So we’ve had two sides of the story recently we’re we’ve had a weakening Yen, and a resurgent strengthening USD – that’s why we had such a quick and strong move of approx. 1000 pips. As you can see from the Daily chart below.

We’re too from now? Well I expect continuing Yen weakness – (lets see if there’s a reaction post the recent earthquake). I also think we’ll have continued dollar strength until the end of the year at least.

So what will be my core positions for 2017? Well I shall update you on those over the next few weeks.

Trade well.

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