Friday, October 16, 2009

Annotated Japanese Yen

Yen - Monthly Chart - Since 1981


Right now, it seems the markets in general are focused on the future of the U.S. Dollar. Equities, commodities, bonds, and currencies are moving in relation to whether the U.S. Dollar weakens or strengthens. Lately, the direction has been decidedly down and there are various calls for the demise of the dollar. Some are technical chart calls. However, those technical calls invariable reflects a growing sentiment that the U.S. government has borrowed too much and confidence has been lost. Indeed, with talk of alternate currency schemes and replacement of the U.S. Dollar as the world reserve currency in the media, it seems that the prestige of the mighty U.S. may be inevitably tarnished. That being said, the U.S. Dollar is still above its all time lows, and it is rather near key support levels. So the question is, will the Dollar collapse? If it does, Dollar denominated asset prices will continue to rise precipitously. If it does not, we get a correction in the rally of Dollar denominated assets (gold, oil, stocks) that has been in force since the Oct. 2008- March 2009 timeframe.

The current overall sentiment for the Dollar seems decidedly negative. For instance, analyst Daisuke Uno of Sumitomo has opined that the Yen will appreciate violently against the U.S. Dollar to the point that the ratio will get to 50 Yen to the Dollar. Article from Bloomberg.com About Sumitomo Analyst Who Thinks Yen will Appreciate to 50 Yen Per U.S.Dollar


Yen Monthly Chart - Since 1991


The technical chart patterns on the long term charts posted above seem to give credence to this theory. We had a massive up move in the Yen off of the Plaza Accord in 1985. That topped out in 1994, and we've been in a consolidation lasting 14 years since then. Recently, we have had another major round of Dollar weakness and Yen strength, pushing prices out of the consolidation to the upside on a breakout. Seemingly, very bullish long term...

Others, like Serge Farra from ETF Corner, whose Yen Chart is below, see the Yen on a bearish reversal. This however, appears to be of a short to medium term timeframe. The candle sticks got a little ugly and the upmove out of the triangle seems to wan to consolidate further, meaning near term the Yen could go down versus the dollar.

Chart of Yen Circa 2008-2009 From Serge of ETF-Corner


Importantly, Marc Faber, who has been dead on recently, came out the other day and said that the dollar demise , along with the Gold and Equity rally may go on hold over the short term, with the Gold rally failing and equities declining up to 20%. That scenario would be Dollar bullish and Yen bearish.

Unfortunately, only time will tell whether the U.S Government and the Dollar will maintain its world hegemony going into the future. In fact, it would appear that the U.S. needs the Dollar to decline to lessen the impact of the massive debt and to inflate asset prices to placate the populace. Hold on, this could get bumpy...

Sources:

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says

By: Shigeki Nozawa
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8
October 15, 2009

FXY - Yen Bearish Reversal
By: Serge Farra
http://www.etf-corner.com/markets/2009/10/fxy-yen-bearish-reversal-.html
October 14, 2009

7 comments:

  1. Glad you liked my site !
    I'm a really fond of your annotated charts.
    Keep it up !

    ReplyDelete
  2. Singer-
    Love the work, but I think on your monthly yen that the real triangle at play is one where you need to drag that upper boundary up to include the recent 114 high. I think that is the real "middle" of the pattern.

    Thus, I'm inclined to agree with Serge, and those YCS, YCL swing trades could be a nice way to play it, but havent checked the volume on those in awhile. I hit YCS up for a good swing this spring.

    Ultimately, I believe the Sumitomo guy will be right, but that will be a few years down the road. Have to do some of my own charts to get a better target of that time frame.

    All about time and geometry, right?

    ReplyDelete
  3. @I-Man,

    You certainly could be right. That would be some insane triangle if it takes another 5 to 10 years to complete... This long term chart may evidence the eventual failure of the dollar... At the end of the day, who knows? I read the Martin Armstrong "It's Just Time" piece. I thought it was great on a number of levels, including the apparently haphazard way in which the floating exchange rate currency system came into being as well as the inflation/deflation argument understood as a battle between confidence in the government (deflation) or public confidence (asset inflation..

    ReplyDelete
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