More Bad News For The Yen As Exports Slow

Includes: FXA, FXE, FXY, UDN, UUP
by: Ralph Shell

It was only a week ago when we sensed some traders, wary of dithering by the Euro Finance Ministers, and concerned by the "fiscal cliff" in the U.S., were searching for a safe haven. Then we cautioned, it was best not to consider the yen, (NYSEARCA:FXY) a candidate for haven status. We said:

"The Japanese economic news remains negative and it is our preference to remain a yen seller."

The news at that time was negative and has continued to be bleak. During October, Japanese exports slipped for the fifth month in a row, down 6.5% from year-ago levels (which were depressed in the aftermath of the earthquake/tsunami disaster), and which resulted in a deficit of ¥549B. There was a small increase in exports to the U.S., but they were down 11.6% to China, and down 20.1% to the EU.

The dispute between China and Japan over ownership of several small islands in the East China Sea has hurt trade with China. The Chinese apparently show their national support by what they drive, as they boycott Japanese cars. Total exports of cars to China from Japan fell 82% the last month.

At the time, perhaps influenced by the negativity in the U.S. equities, we suggested long the AUDJPY. As you can see from the daily chart, the trade worked out well, but with the RSI above 72, the market has had its move. Best to take profits and wait for a pull back, or seek other opportunities.

Our apprehension about the USD (USDJPY) to the yen was unfounded. That pair traded from a low of the USD of around 79.40 to 82.55, with the 14 day RSI going to 77. But the yen was weak against even the euro, going from 100.80 to 1.0560, where the RSI almost reached 69. Longer term, we think there is a bear case for the yen, and it can weaken further than where we are currently trading.

With lighter trade because of the U.S. holiday, there may be some volatility and opportunities in the markets, which might work well with a good plan.

There may have been some evidence given today that the U.S. economy is not as strong as advertised. Prior to the U.S. election, we had economic news that supported the theory the U.S. economy was recovering nicely. Since, there has been some numbers that may dispute those theories. First was the U.S. Initial Unemployment Claims, low balled on the last report prior to the election. From the unexplained low, that number has again been revised to a high of 451K, the highest in months. This was followed by 410K, another big number today.

There was also the suspected high ball number from the University of Michigan. In other words, there was an unexpected pre-election jump in the University of Michigan Consumer Sentiment Index. The sentiment number jumped to 84.9, the highest since December 2007. Today, the number was back down 82.7, below the expected 84.5.

These might be clues what to look for going forward. The U.S. economy may not be as robust as advertised. If that is the case, does that mean the USD becomes a safe haven in a risk-off climate? It is best to watch carefully and remain flexible.

(click images to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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