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Richard Cox
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Born in the Arizona desert. Richard Cox is a university teacher in international trade and finance. Lecture halls of 80 to 120 students. Lessons in macroeconomics and price behavior in equity markets. Investing strategies in these articles are based on technical and fundamental analysis of all... More
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  • Investing.co.uk Weekly Report: Yearly Downtrend In EUR/JPY, USD/JPY On Track To Long Term Targets 0 comments
    Mar 12, 2013 1:12 AM

    The Japanese Yen has a year long downtrend that is starting to re-assert itself. This initially happened as Treasury yields moved higher and the typical USD/JPY rally ensued. Some market analysts were even talking about the US Dollar as a new growth currency (which would mean it would gain during times of economic stability). These trends started to change last spring, however, as the debt crisis in the Eurozone led investors to place the US Dollar back in its position as a safe haven asset. In addition to this, the US Federal Reserve has signaled a potential end to its quantitative easing programs, and this is bringing about round of strength to the US currency (as inflation expectations are reduced).

    In Japan, the opposite scenario is now in place, and this is a heavily bearish scenario for the USD/JPY. Specifically, this means that the country's central bank is enacting measure to weaken the currency (in an effort to provide a supportive environment for technology exporters). These differing central bank approaches is likely to weaken the JPY against most of its major trading counterparts and there is little to suggest that this will change for most of this year.

    USD/JPY Technical Analysis

    The monthly chart in the USD/JPY has shown some interesting volatility and many examples of one way directional movements. The latest of these has been in the upward direction with very little in the way of downside corrections since September of last year. Toward the end of February we did see prices fall to the 23.6% Fib level (measured from the rally from 76.90).

    Prices immediately rallied from this level, however, and we are not seeing a long wick on the monthly candle. This ultimately suggests an imminent break of the previous highs at 94.45. This move will be significant if it occurs, as this levels is also the 38.2% retracement of the decline from 123.60. An event like this creates the next target at 99.50 (which is the 50% Fib retracement just ahead of the 100 psychological level). Overall, traders should be looking for any evidence of weakness in order to get back into long positions and if this is done with higher yielding currencies, interest carry can be generated for the positions as well.

    EUR/JPY Technical Analysis

    In the EUR/JPY, we are seeing similar Fib structures, but prices have experience a more steady rally than what is seen in the USD/JPY. This is not surprising given the relative strength of the Euro and Dollar, but the more steady activity in the EUR/JPY is suggesting of a more valid uptrend. Prices are currently coming into some critical support levels, however, and if we see a clear break of 119.50, we will likely see a test of 114.70 on the longer term. This level is the 38.2% retracement of the rally 93.90.

    AUD/JPY Technical Analysis

    Next we will look at the AUD/JPY, as this pair has a slightly different structure. Specifically, prices are now coming into the 61.8% Fib retracement of the decline from 97.40, which comes in at 95.70. This area is suitable for medium term sell entries, and the likelihood that we will see a drop here will be enhanced if we see a break of 119.50 in the EUR/JPY. If we do see a break of 97.40 in the AUD/JPY, the next upside target can be found above 97, and this is a good long term trade for those looking to gain carry value on the expected broad based weakness in the JPY. For more trading tips, visit www.investing.co.uk.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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