Tuesday August 9, 2005 - 11:30:33 GMT
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A yen buying or selling opportunity?
“Every successful enterprise requires three people—a dreamer, a businessman, and a son-of-a-bitch.
FX Trading – Brief comments on the yen
Is a yen buying or selling opportunity upon us? Before the vote in Japan to privatize the postal service, we were told the yen would be pounded and Prime Minister Koizumi would slowly fade away. But, the yen remained firm and it seems the vote against privatization has only emboldened the Prime Minister. If he wasn’t confident that the economy was recovering would he be so bold?
There has bee a rash of good economic news breaking out in Japan; this from Bloomberg this morning is just one example: “Japan's machinery orders surged 11.1 percent in June, almost twice as fast as economists expected, as service companies expanded to profit from a rebound in consumer demand,” Bloomberg reported.
There is even talk about the Bank of Japan moving away from its zero interest rate policy. Wouldn’t that be interesting—rising Japanese yields! That potentiality would put a major crimp in the yen’s perpetual carry-trade currency status. And in the background, we still have the potential of rising Asian block currencies on the back of a rising yuan.
Below is the daily Japanese yen futures chart – Sep ’05. Two points to make:
1) The low on July 20th traced out a candlestick pattern known as Doji. This is the ultimate sign of balance between the bulls and the bears. A doji often it spikes out a key turning point when it appears after a trend has been in place.
2) There has been a decent rise in open interest as the yen has trended lower since mid-June. This probably means there are plenty of players short the yen—and in fact there are.
The net short position in yen, based on the August 2nd Commitment of Traders report, showed 43,151 net short among non-commercial speculators (people like you and me). This was the largest net short among any of the currencies. This net short position can act as fuel for a rally once the trend has changed. Players either close their position by buying yen. Or players switch positions to the long side, thus they buy to close and buy again to go long.
Chart: Japanese yen futures
In trading, one is never really sure—or should never pretend to be. But this does seem to be a decent risk/reward plunge.
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