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What's With the Yen?

Posted on June 22, 2016

What's With the Yen?

Posted on June 22, 2016

Dear reader, if you’re like me I’m sure by now you’re more than annoyed with all the talk and emotional volatility that the Brexit vote due tomorrow is causing.  Heck, I’m sick of the articles.  How many different things can there be to talk about leading-up to the vote to sell a newspaper?

Anyway, due to this fact, I’m not going to add my two cents on the matter. I’m going to talk about why the Japanese Yen rallied amidst such a poor economic back-drop.  My curiosity was piqued due to the recent rally in the Yen [FXY] vs. the dollar [UUP] since the beginning of 2016.

When looking at a comparison between the yen [FXY] and the dollar [UUP] I wanted to see what the effects were following the devaluation of the Yen and how or why it climbed amidst the Bank of Japan’s implementation of negative interest rates1?  Typically, when rates are cut as dramatically as Japan’s, I’d expect the Yen to fall out-of-bed too.  The reason being that lower yields / rates would reduce incentive to invest in Japanese Treasuries and thus reduce the demand for Japanese Yen also.

But, oddly, this wasn’t the case at all.

At the beginning of 2016 up to the current day, the Yen rallied as the dollar fell.  Fundamentals could not clearly identify the reason for the Yen’s rally other than the lack of interest in the dollar. 

Due to this blatant comparison on the charts it made me conclude that the Yen was following its own pattern and could be reasoned that it was also opposing the dollar as it has been proven to do in the past upon comparison on the charts.

FXY had formed what looked most clearly to be a saucer bottom pattern.  See the image below.2

Now, I understand that there will be those to contend this argument for differing views of market sentiment or financial philosophies.  I understand this.  I thought I’d take a moment to explain these market’s interactions from my lens, most notably, the fact that no one is clairvoyant with predictions on where market’s will go nor why. 

This was certainly a case in which I would’ve had the least ability to foresee.  As a trader I need to keep my ego at bay and know that I’m not an expert or whiz-kid.  Thankfully, the market timing signals we follow indicated a 100% entry in late 2015 just as the Yen was gearing-up to go higher. Image below.3

Tell me your thoughts and what you’ve concluded on the interactions of these markets. I’m all ears.

Jos. G. Sellery
[ 4 ] not used. Article from 2013 May, 9.