Dec. 4, 2013
Selling Japanese Yen has been a good trade again these last few weeks, as the six-month triangle consolidation pattern seems to have finally cleared the path towards new lows. But the trade has become a little too popular, so I decided to take some profits on Monday and step away for a bit. With Yen futures registering an impossibly low 6% bulls on the DSI Monday, I have to wonder who the next marginal seller will be. Although the long term fundamentals continue to favor a core Yen short, I feel that a modest correction is due. We may have a better opportunity to reload again later this year.
I do, however, continue to like the prospects for a JGB short, as Japanese inflation continues to rise (while elsewhere in the world it has been declining), making real yields in other developed nations look a lot more attractive for international investors, including the big Japanese life companies who have been doing the heavy lifting in the JGB market.
Ten-year JGB yields have this far held the 61.8% retracement of their huge bearish reversal from earlier this year and now appear poised to threaten the declining trendline from their May highs. If this trendline and the recent highs of 0.65% are breached it will signal a potential change in trend, and I’d be content to carry the short well into next year if need be.
Incidentally, with all this taper talk of late, real yields in the U.S. are starting to look fairly interesting again. I’m not necessarily advocating for a long Treasury position right here, I just think it’s something to keep an eye on as we head towards the December FOMC meeting. It may also make an interesting pair versus a JGB short, as the two have diverged dramatically in recent months.
Good luck and Happy Trading,
D