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I have been a recent proponent of a long-yen, short-dollar trade. I wanted to provide an update. Since I made the recommendation on
December 10, here are the current results:
| Recommendation | Vehicle | Next Open | Last Close | Result |
| Long Yen | FXY | $ 109.02 | $ 111.66 | 2.42% |
| Short Dollar | UDN | $ 26.01 | $ 26.17 | 0.62% |
The dollar has been stronger than I expected in this environment and the Yen has performed as expected. Overall we have a 1.5% return on an equal weighted trade.
Let us take a look at the charts to see if the trade is worth keeping in place. The trigger ratio is still above the break out level of ~4.28. I do not know how important the 10 day moving average is to the ratio - I believe the actual level itself is more valid. Using this measure, I believe our thesis remains in tact.
The Yen made a nice spike high on strong volume, but the last time that happened, there was a steep sell off pushing the ETF below its’ 10 day moving average. It has shown better strength this time, and believe the long trade to still be correct. Similarly, the UUP bounced off its sell-off level and nears its’ 10 dma. I would keep the short trade on with the evil twin - the UDN. Should the 10 dma not hold according to the thesis, then this would be an indication that we are wrong and should get out of the trade. Do not wait for the market to take all of your money.
And what of the Euro? It is showing nice strength, but it is not as good of a chart as the Yen. They Yen has a clearly defined uptrend, while the Euro could merely be experiencing a counter trend bounce.
Back on December 10, I stated that among individual European currency, I liked the Swiss Franc the best. I expected a bounce in the Euro to produce a higher bounce in the Franc because the Franc had been stronger earlier in the year. This is turning out to be true. The recent 9% run in the Euro was countered with a 12% move in the Franc. This was taken from the opening on December 11 to the high on December 18.
Will the out-performance continue? I think it will. A long-Franc trade might be in order should it tag its 10 day moving average. Discipline dictates that we do not just buy at will. We must buy when the set up is there.
I have no personal positions in any of these ETF’s and nor have I held any positions since I recommended the trade. I placed limit orders on December 11, but was unable to hit my bid. Because of the strong movement on that day, I decided not to adjust my orders and chase the trade. I may place orders again if the thesis remains in tact.
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