Commodity Chart Of The Day: Japanese Yen - Contrarian Play

Apr.26.13 | About: CurrencyShares Japanese (FXY)

The yen's 8-month clobbering is no secret. It's down over 20%! But what's interesting now, in my eyes, is how the yen seems unable to trade below parity with the dollar.

Recent data out of Japan shows inflation expectations are on the rise, so why not see a bounce in Japan's currency after such a vicious onslaught? The point is, I just don't see the Bank of Japan (BOJ) getting to its 2% inflation target. Not in this environment. Either backlash over what many will call a "currency war," or long-term yen buyers finding value at the current "20% discount," should eventually put a temporary floor under the yen. That said, view any move higher as just a bounce in a longer-term down trend.

Here are two views of the yen -- a Weekly (top) and Daily (bottom) chart. The Weekly shows the big picture where a potential triple top seems in the making. Use the Daily chart to evaluate your entry and exit points on bullish trade.

Weekly:

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Daily:

Click to enlarge

The yen has been consolidating just above par (June futures) for the last three weeks. On the Daily chart, the 20-day MA (dark blue line) is being probed today. This should get the momentum moving to the upside on a settlement above this pivot point.

I've started to work into bullish trade with some of my aggressive clients. I am not advocating any outright futures plays, at this time, as the risk is too great. I do think it's worthy of an option trade.

As I'm looking for a quick pop, I've opted to position clients in June contracts. Traders looking for a longer window are advised to price out plays in September contracts, which have 3 times more time to expiration. Back ratio spreads are my favored play -- look to sell one (1) out-of-the-money call and buy multiple calls at further out-of-the-money strikes, positioning yourself for the upside volatility. Use the Fibonacci levels above as your objectives… in a perfect world, we'd like to see a swift advance to $1.0475 -$1.0500.

Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.

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.