Yen Breaking Down

There’s been a lot of talk lately surrounding the currencies of the United States & Europe.  We had the Euro doing so well that models were changing their contracts to get paid in Euros.  That was the sell sign from God.  This was at the time when the dollar was just completely getting trashed.  Then, last summer, the dollar reversed and started going up at the same time commodities started getting whacked.  But, we haven’t heard a lot about the Yen.  Most traders watch the yen and trade the yen through the exchange traded fund CurrencyShares Japanese Yen Trust (FXY).  It’s now breaking some technical levels and I think it has further downside.

Looking at the chart below of FXY, you can see there were some early warning signs.  In mid January, FXY was testing its old highs from just a month previous.  However, the relative strength index at the top was making lower highs.  That was the first negative divergence we had seen.  As you know from reading my columns, when any chart looks like this and makes a run straight up in such a short time frame, it’s normal for that investment to give back half of the gains.  Going from $90 to $114, means that FXY could fall $12 from the high which would be around $102 or so.  I’ve circled the area I think it can ultimately bottom.  Somewhere in the $100-$102 range.  The $100 level is the 200-day moving average.  The fall of the Yen doesn’t necessarily mean anything for our U.S. stock market.  What’s more correlated is the euro/yen relationship.  The stronger the euro is vs. the yen, the stronger our market is.  That relationship has held up for some time.  So, perhaps the Yen falling so fast could mean better days ahead for our markets.  But, I’m not buying yet.


I’ll be doing two live television hits tomorrow morning on Fox Business.  One will be at 8:10 and one at 8:30 a.m. CST.  Make sure to tune in.

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