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Currency outlook - Yen
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Perhaps I should have called this story "Sorry about that long Yen recommendation". I liked it on March 2 and again on March 18. I go hot and cold on the Yen and I have to admit that I'm a little late in getting cold.
Wow is the Yen in a world of hurt these days. Take a look at this simple chart of the last 6 months:
That's a nice round trip isn't it! From the mid 90's into the 110's and back again. So what can we look for next? Let me add a few moving averages and resistance lines to see what we can see (click for the full size chart):
This looks like a classic short from here. You have the etf hitting two important resistance levels
- 200 Day Moving Average
- $100 level has been important in the past.
There are also reasons to think that the downside potential is limited. The next support level is at approximately 97, a mere 3% away. That may not be enough of a 'downside' reward. Also, take a look at this longer term chart for the FXY (click for full size):
What you will see is a long term trendline that we are approaching at about the $97 level. This will be the first test of the line as support, so this will be telling for the Yen. You will also see that from mid 2007 low until the December and January peak, we have seen approximately a 50% retracement. The next Fibonacci level would be about the $93 mark.
Should these levels fail to hold, it could be "look out below" for the Yen. I would not recommend a position either long or short at this time.
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