A 180 Yen Outlook

  • Trading has been feeling a little like bad fishing
  • Yen weakness sets up new opportunities 
  • Yen not ready to break from risk relationship yet
  • Still waiting for stocks to fall off a cliff

GONE FISHING - It's feeling a little like I went out fishing and kept catching some big ones, only to have them slip away after being in my grasp. This analogy is applicable to my recent trades in USDJPY and AUDNZD, where I was long at attractive levels, before getting taken out, only to see these markets rip higher. But this is how it goes and I'm not writing this update to dwell on missed opportunities. In fact, quite the opposite. I think there is new opportunity on the horizon. 

THE REALITY - As much as I love the idea of being long USDJPY over the medium and longer-term, and as much as I love the idea of buying intense USDJPY declines, on a shorter term basis, the trend is still favoring the downside here. While we have seen a nice bounce in recent trade, the daily chart is still showing a clear downtrend. As such, this push higher is actually setting up a possible short trade. I wouldn't pull the trigger just yet, but somewhere around 110.00 today could make good sense. 

STILL THERE - Fundamentally, as much as I believe the Yen will separate from its relationship with risk, for the time being, any downside pressure in equities should continue to be Yen supportive. This means renewed weakness in stocks will translate in renewed downside pressure on USDJPY. I continue to hold an aggressively bearish view of stocks elevated on exhausted monetary policy, and so, I will be looking for another drop in stocks in the sessions ahead to also open downside in USDJPY. 

The prospect of another downturn in stocks suggests $USDJPY lower again. Via @joelkruger

STRATEGY - So the strategy for the moment is to sit back and see if USDJPY can push higher today up around and possibly through 110.00. Once this plays out, and if this plays out, I will then look to fade the rally in anticipation of another sharp decline. I will also be looking to sell the SPX500 again after booking a nice +2% profit on the previous trade. But here too, I will be waiting for a more significant rally intraday before stepping back in. 

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