Ok, so it seems we’re in risk on mode tonight. [Read: refresh your shorts (positions) so that you can get rid of your shorts (garment) during the New Years party.]
…or, in this repulsing least-ugly beauty pageant where people are fleeing to the relative safety of the US dollar and that’s the only thing that matters given its bond market size and share of the daily currency turnover from reserve currency status is the US$, risk on means dollar off. Gold, yen, euro, stocks,.. well you name it! is going up. Cash, give up your throne, the new king is correlation!
Gold to wit passed the 1610 level and didn’t look back. Rally baby! More promising on the 4 hour, but less so on the 1 day, and the next target is somewhat conservatively put at the 38.2% fib at around 1640 for now.
Euro? Pushing up against that 1.3146 level everyone is talking about for the October low that was crushed last week. With no one knowing what exactly the LTRO is, or how it works, or what exactly it will solve (have yet to read about this, actually… can’t get it explained clearly) and the newest €200 bn seeming to crumble more and more by the minute (UK pulls out, Italy pools more money to the rest of the EMU, which lends more money to IMF, so they can put in more money to … financially stressed ITALY?) I guess everyone is sipping a little bit prematurely on their egg nog over at the trading desks. I thought this was exactly the sort of behaviour that was supposed to disappear when the $10/employee Christmas spending package limit was instituted in RBS…
To more pressing matters: The yen!
Now, take a look at chart 1 here. As usual, courtesy of CMC markets.
Although I love Bollinger Bands (charts 2 weeks of 4h price action in this case) and MACD, they’re dead at the moment given the ranges. The MA for two weeks is pretty flat near price, again indicating that any break will quickly pull it along, and that’s everything BB’s will tell you here. Ichimoku on these time frames got a hit as well from the well-defined ranges. Meaning, we’re left with triangles, and trying to figure out just which trend lines to follow, when price broke the lower trend line charted here. Yay! Word of caution: it did have short breaks below the trend line twice after establishing it, so use about 0.100 yen as a margin of error before entering long, even on a 4h close below trend. That aside, this could be the next leg down, and I really don’t see much of a risk of breaking the 78.2 level.
My triangle analysis doesn’t really apply in this instance. I will show you more clearly later, but it is true that a flatter trend (the resistance for the US$ at 78 JPY) does tend to be stronger, and thus break more forcefully when it does break. It’s stronger, yes but not amply set for a break above. Another reason for this is the initial upward trend line that served as a support but then later broke to create a bottom at 77.4 and acted as a resistance thereafter! After the bottom at 77.4, the next trend using the 76.7 low, 77.4 and the pre-intervention price action set in and created a weakly expanding triangle relative the resistance line. This is obviously a show of very much weakened price action, especially considering the rather quick retracement immediately following intervention (first resistance trend line drawn) which was quickly halted but not very effectively reversed. Tea leaves say: drop!
That makes the next immediate targets 77.4 (previous bottom) but an eye needs to be put on the 77.5 first. There’s a morning star 4hr doji (8th of Dec) with longer wick downwards, which set off the push from 77.5 to 78.1, is obviously important, and traders need to be aware of the implications of the relatively massive wicks near these trend lines, and either set off using a more acceptable counter pair (SEK, EUR, HUF, or any number of Asians) to increase fundamental R/R-ratios, or tight stops. Next level is obviously 76.7, and after that it’s a fair calling game for the pre-intervention bottoms in the region of 76.31, 75.94, and ultimately 75.3.
Why did I say that I don’t think an upwards break is particularly likely? Now… look at this:
Yes, the lower trend line is a bit fudged (should use consolidated weekly bottoms around in late 2008, gives better fit with the 2009 and 2010 lows) but this gives you an idea of where we are. Yes, the stuff under the arrow is the previous chart (squint and you’ll see it!). Ignore BB’s and MA’s. The green one is an 18 week EMA for example… I have no clue what it means but I need to use it later on a different frame, so didn’t want to remove it from the same chart package. All in all, momentum indicators are fairly useless at the moment in this currency.
And that trend line on the upside is from the late spring of 2007 by the way… I duplicated it to show it clearer and allow some adjustments if needed in the biggest time frame I could use in one screen. Anyone willing to bet on an upside break for the USD? How many times in the past has that paid off for you?
My bet: 73 happens before 80!