CHOPPY YEN - In some ways, I was surprised to see the lack of downside follow through in USDJPY on Monday, and in others I wasn't surprised at all. I had been short USDJPY from above 116.00 and was able to catch a nice little profit on Monday, following the dip back below 116.00. I had said this was going to be a short-term trade and I meant it. In truth, I would have liked to have seen a sharper reversal, and I believe we will get one over the coming sessions given the extended nature of the daily, weekly and monthly chart. But after the horrid Japan GDP print, it is tough to make a strong case for the Yen. Other than the short-term technical justification for a necessary, healthy reversal to allow for stretched studies to unwind, the only reason to be considering a long Yen position is if you still believe in traditional risk correlations.
THE SHORT-TERM - I have said many times the Yen is by no means a safe haven currency and should not have any meaningful upside in a risk liquidation environment. But at the same time, this traditional correlation still exists in some form, and should we get a pullback in stocks, I would expect to see some form of a Yen rally. I may jump in again if the opportunity presents, as I am still looking for a drop back into the 112.00 area in the sessions ahead. So I've exited the two short-term trades from last week, with small profits in the OIL long and USDJPY short, and am still hanging onto the medium-term positions short SPX500 and long EURCHF.
THE MEDIUM-TERM - Both of these trades are out of the money at the moment, but I am comfortable holding and waiting as per the plan. It is a bit of a tease to see nothing happening in EURCHF, despite the proximity to 1.2000. Let's get an intervention or let's see those stops tripped below 1.2000. Give us something! On Monday, I talked about a bit of an ongoing currency correction as the US Dollar took a bit of a breather. But with the fundamental backdrop as it is at the moment, there is really no reason to expect any hard declines in the Buck. If we use EURUSD as a proxy, I would say that we should continue to expect broad USD buying until the 2012 base at 1.2040 is tested. So keep looking to sell currencies until EURUSD breaks down into the 1.2000's. From there it could get a lot more interesting, and the US Dollar could accelerate further, but for the moment, that should be the next target.