Time to Dip into the Waters

  • Yen move finally becomes compelling
  • Fresh Yen shorts established 
  • Keeping an eye on the EURGBP rate

BUSY BUSY - Things have been busy over the past 24 hours and I have been active with the trading. All has gone well after booking nice little profits on GBPUSD and EURGBP Wednesday. I still like the idea of fading this Brexit craze and buying Pounds, but at this point, the long Pound trade has been limited to short-term shots (more on this later). But into Thursday, it's finally time to start trading that other currency everyone has been talking about. 

YEN CRAZE - The rally in the Yen over the past fews sessions has been wild, with many doubting it could ever happen, not really seeing the possibility of the USDJPY rate breaking below 110.00. And yet, here we are. USDJPY has collapsed below 110.00 and this now opens the door for a move towards 106.50. However, just because there is risk for a drop to 106.50, doesn't mean I shouldn't take shots along the way. 

TIME TO STEP IN - The situation has intensified on Thursday and the Yen is looking super-extended at this point. At least on an intraday basis, the move has gone parabolic (unrelenting in one direction) and we have ventured into the phase of 'exhausted irrationalism' where stepping in makes sense. So what have I done. At this point I have started building into short Yen against the Buck and Pound. I will be happy to buy more USDJPY and GBPJPY today, and I would recommend referring to the trade journal for color. 

OFF THE RADAR - Otherwise, it's EURGBP that has my attention. When you look at EURGBP, you are looking at a market that is now overbought on the daily and weekly time frames and also trading into some critical longer-term falling trend-line resistance off the historic 2008 peak. That resistance comes in ahead of 0.8200, making a sell in the 0.8100-0.8200 area a highly compelling medium-term trade. So I have my eyes on this market and will be looking to pull the trigger. 

MISSING THE STORY - Fundamentally, we need to remember that a UK exit from the EU would be pretty damaging to the Euro as well. While it's clear the Pound stands to suffer, I don't think the market has been appropriately pricing in the downside risk to the Euro in this event. The Eurozone is heavily reliant on its trade with the UK and if this relationship is compromised, the Euro will suffer. So the trade here seems to work both ways. 

The market seems to be forgetting the negative impact of #Brexit on the #Euro. Via @joelkruger

RATIONALE - If between now and the June referendum the risk for an exit increases, it's quite possible the Euro will start to respond more seriously to this prospect and trade lower (the Pound has already been pricing this in so stands to fall less). This could translate to a lower EURGBP rate. And if on the other hand the risk swings back in the 'remain' camp's favor, EURGBP should come off a good deal. Anyway, there's a little for you on the medium-term fundamentals. Let's see what happens.

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