Japanese Yen Contrarian Play

The Yen’s 8-month clobbering is no secret. It’s down over 20%! But what’s interesting now, in my eyes, is how the Yen seems unable to trade below parity with the dollar.

Recent data out of Japan shows inflation expectations are on the rise, so why not see a bounce in Japan’s currency after such a vicious onslaught? The point is, I just don’t see the Bank of Japan (BOJ) getting to its 2% inflation target. Not in this environment. Either backlash over what many will call a “currency war,” or long-term Yen buyers finding value at the current “20% discount,” should eventually put a temporary floor under the Yen. That said, view any move higher as just a bounce in a longer-term down trend.

Here are two views of the Yen – a Weekly (top) and Daily (bottom) chart. The Weekly shows the big picture where a potential triple top seems in the making. Use the Daily chart to evaluate your entry and exit points on bullish trade.

Weekly Yen Futures chart:

Japanese Yen futures, weekly chart

Japanese Yen futures weekly chart, April 26, 2013

Daily Yen Futures chart:

Japanese Yen futures daily chart

Japanese Yen futures daily chart, April 26, 2013

The Yen has been consolidating just above par (June futures) for the last three weeks. On the Daily chart, the 20-day MA (dark blue line) is being probed today. This should get the momentum moving to the upside on a settlement above this pivot point.

I’ve started to work into bullish trade with some of my aggressive clients. I am not advocating any outright futures plays, at this time, as the risk is too great. I do think it’s worthy of an option trade.

As I’m looking for a quick pop, I’ve opted to position clients in June contracts. Traders looking for a longer window are advised to price out plays in September contracts, which have 3-times more time to expiration. Back ratio spreads are my favored play – look to sell one (1) out-of-the-money call and buy multiple calls at further out-of-the-money strikes, positioning yourself for the upside volatility. Use the Fibonacci levels above as your objectives… in a perfect world we’d like to see a swift advance to $1.0475 -$1.0500.

As always, I’m here to discuss specifics and give guidance. Give me a call…
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997

Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.
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2 Responses to Japanese Yen Contrarian Play

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