Thursday, March 27, 2014

XJY Japanese Yen Sideways Channel Tight Standard Deviation Bands

The standard deviation bands are squeezing in tight (pink) for another big move to occur in one direction or the other. The squeeze in late 2012 was lower, the squeeze in late 2013 was lower, what will occur this time? The move will be profound.

The green lines show the positive divergence that has been highlighted many times since late last year forecasting a move higher with the yen, which occurred, the exact opposite of what the consensus expected. The yen is favoring the sideways channel. The indicators are long and strong printing higher highs so higher prices for yen are desired even after any pull back occurs. The yen bulls need the RSI to move above 50% into bull territory.

To understand the asset relationships currently in play, a weaker yen, weaker XJY, represents the BOJ weakening their currency with QE. This sends the dollar/yen currency pair higher and sends Japan, US and European stocks higher. The BOJ saved Europe last year, both stocks and bonds, with all the weak yen. Conversely, as the yen strengthens, the XJY moves higher, the dollar/yen pair moves lower, and equities sell off. Note the big drop in the XJY from late 2012 into mid 2013 that fueled the stock market higher. Equities vascillated mid-year and then note the drop from October 2012 into the end of the year. That is the Fall rally for the US stock market fueled by the weaker yen. BOJ Governor Kuroda was out back beating the yen relentlessly with a baseball bat to pump stocks higher. Everyone cheers yelling "Banzai!" as fortunes are made by destroying the currency.

This year, in January, the yen pops on the possie d (green lines) and equities sell off. The expectation is for a stronger yen and lower dollar/yen pair moving forward for the weeks and months ahead; sideways to sideways higher. This would correspond to the stock market moving sideways to sideways lower. 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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