A Pause in the Japanese Yen’s Destruction

Currency destruction usually usually places a sovereign national bank at the pointed ends of its citizens’ collective swords. The country’s citizens watch helplessly as they wake up each morning less financially secure than they went to bed the previous night. This general sentiment is why the Japanese Prime Minister, Shinzo Abe’s popularity is counter intuitive. His political platform has been based on the public destruction of the Japanese Yen in a last ditch effort to end 25+ years of secular deflation. As a result of Shinzo Abe’s platform and with the help of the Bank of Japan’s Governor Harihuko Kuroda, they’ve driven the Yen down approximately 20% versus the U.S. Dollar in the last year. Commercial traders are making a strong case that we may be nearing the end of this decline.

The selling in the Japanese Yen over the last year eyeballs out to three phases. The first phase lasted until the short lived September-October bottom. During the first sell off, commercial traders became buyers as the market fell shifting towards a positive momentum stance that helped makeup for the premature August COT Buy Signal. The next wave of selling dropped the market through Y115/$.0086 area. The consolidation during this period did provide two profitable trading opportunities. The final leg of selling pushed us down to the recent Y120/$.0080 area and sets us up for the current situation.

Following the commercial traders in the Commitment of Traders reports can provide solid trading opportunities on both sides of the market.
Following the commercial traders in the Commitment of Traders reports can provide solid trading opportunities on both sides of the market.

Commercial traders have nearly doubled their net long position in the last two weeks, adding nearly 70,000 contracts in the process. The rapid purchases have quickly pushed their momentum firmly into positive territory. Given the market’s predominantly oversold nature, we view the commercial trader action along with the recent technical action to qualify this as a buying opportunity and expect the market to rebound. We’ve noted the important chart levels in both Yen per Dollar as well as Dollar per Yen as the market is frequently quoted in both formats. Finally, as always we will be placing a protective stop at yesterday’s swing low of .007945 in the September futures contract. Capital preservation today is always the key to participating in tomorrow’s action.

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