Tuesday, August 16, 2011

When can we pen that yen for the Yen is at zen-ith? Careful over 133, 135

Is the Japanese Yen's strong rise reaching toward a top? It's possible. Despite publicly announced concerted efforts by the Bank if Japan for many months, investors have bid up the currency and it's been looking like a refuge. How far we've come from when shorting the yen was a carry trade supporting the momentum buying of other assets. Meanwhile the Nikkei 225 index is languishing barely above 9000, and ten-day historical volatility in the MSCI index reached its highest level since March. We can't blame earthquakes and tsunamis so much as market forces and even Fibonacci! Let's see if the Yen is reaching a zenith.

My big-picture monthly chart of the Yen ($XJY, or it can be traded via the ETF called FXY which tracks very closely) has supported a price target beyond 128 and toward either at 135.88, or over 138. These projections which I calculated almost two years ago are based partly on one Elliott Wave alternative, and partly on my Fibonacci calculation of a conservative 1.272 extension of the monthly chart's consolidation range carved out over years. See my monthly chart (second chart below). The daily chart (my first chart below) has a hint of a potential triangle target at 135.70-ish, with possible negative divergence just starting to creep in. The wide volatile swings in price on the daily chart are another hint that the yen may be chopping to a significant top.

As a more conservative target, 133 $XJY is identified by Tony Caldaro, the Objective Elliott Wave analyst we respect, in his excellent overview analyzing currencies at http://caldaro.wordpress.com/2011/08/15/foreign-currency-and-usd-update-2/. So I won't stand on ceremony if the Yen carves out a topping pattern at 133, even though the Fibonacci projections I respect hold out the promise of 138+.

Then again, investors' yen to buy Yen (even in a short-covering blowoff) may carry it beyond 138 $XJY. I say that partly based on my own ideas for possible Elliott Wave counts; Fibonacci projections like 1.382 and 1.618 that can carry it well past the 1.272 projection of 138; and also, the basic point-and-figure (P&F) chart courtesy of Stockcharts.com (bottom chart below). Are you sitting down? That P&F projection based on the breakout in late July, assuming support holds at/above 124, points to a target of 151 ...!

Good reason to evaluate the negative divergence plus reversal patterns, if any, that might print out at the lower levels - 133, 135, 138 - to see if they get the job done, or if 151 may actually await traders who turn bearish on the yen too soon. So if you're trading the Yen, be alert at these price levels. Don't be deterred from speculating on a potential reversal, but if you do, then absolutely use stop protection in case the Yen becomes a shooting star in forming its zenith for this upward cycle.

No comments:

Post a Comment