Saturday, November 23, 2013

XJY Japanese Yen Daily Chart Sideways Symmetrical Triangles

Banzai!!  Banzai!!  The next best thing to the Fed pumping the stock market higher is the BOJ pumping the stock market higher. The weaker yen (higher dollar/yen currency pair) created much of the U.S. equity upside this year, of course along with the Fed's easing. Both nations are printing money like there is no tomorrow; they probably use the same printing presses with interchangeable plates, one for the dollar and the other the yen. The BOJ maintains their monetary policy last week and spoke very dovishly which ignited the Nikkei and U.S. equities rally. On the right hand side note the drop in the yen due to the BOJ's dovish talk, just like watching the dollar drop when the Fed speaks dovishly. The drop in yen sends dollar/yen higher as well as the Japan indexes, the NIKK, and DXJ, a long ETF fave of many investment houses these days, as well as U.S. stocks. The dollar/yen punched up through 100 then up through 101 and hangs around 101.30 all day Friday pumping U.S. stocks higher.

Look at the drop in the yen earlier this year that created the wild upside market orgy in Japan and the U.S. Price then fell into the falling wedge and the positive divergence and oversold conditions launched the yen to usher in the stock market May-June selloff. The yen has been quiet ever since moving sideways through the pink channel. The yen falls through the lower trend line of the sideways triangle. The vertical sides of the triangle are 7 to 10 handles which would target 92-95. The May low is 97-ish. Typically, when price collapses from a sideways triangle, the indicators will have plenty more downside available to reinforce the move, however, the stochastics are already well oversold at the bottom. The RSI is oversold as well now so the anticipation is that the yen should not collapse to the lower target 92-95.  Using the neon triangle since it fits better on the lower trend line yields a vertical side of about 5 handles. This triangle targets 97 (102-5) which is a test of the prior low. Thus, this test is very much on the table but if the thin green lines for RSI and MACD line are not violated, positive divergence should send the yen higher again and place a firm long-lasting base.

The yen, dollar and euro currency moves are very important going forward. Japan and the U.S. are beating their currencies with a baseball bat day in and day out so the euro remains elevated. This makes the sick man of Europe even sicker since a weaker euro is needed to spur export and manufacturing growth and help the continent pull out of recession and depression. ECB's Draghi cut rates at the last meeting but it has no affect with the BOJ and Fed bashing their currencies more strongly. As Europe increases measures to beat the euro lower, the global currency wars, the race to debase, will heat up.

The short red lines for the indicators are weak and bleak wanting lower lows for the yen even after a bounce should occur but, in general, the yen should seek a sideways path forward. It is anticipated that the yen, dollar and euro will all seek more of a sideways vibe moving forward. As long as the yen weakens (dollar/yen moving higher) stocks are going to remain elevated. If the yen strengthens (dollar/yen lower), which should occur as the weeks move forward (after the test at or near the May lows) into 2014, the stock market will leak lower. Use the dollar/yen 101.30 as a pivot area. Below 101.30 and the weaker relative yen will likely not have a bullish effect on stocks. Above 101.30 and the weaker yen will move the stock market higher. Much of the initial happy bull thrust in stocks due to the weaker yen likely played out in the back half of last week. Watch the yen and dollar/yen pair closely, as well as euro/yen and euro/dollar. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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