From the desk of Thomas Bruni @BruniCharting
With the Yen rallying nearly 10% from intraday low to high in as many days, this breakout is not one to be ignored. Since the Yen has a strong negative correlation with US equities, this inter-market relationship is an important one to keep track of regardless of whether you trade currencies or not.
Structurally the Yen has been trading in a seven point range at and below the 2006-2007 lows for the last 15 months. Late last year prices confirmed a failed breakdown by breaking back above the 2005 & 2007 lows, as well as the downtrend line from the 2012 highs.
Over the past two weeks prices have accelerated to the upside, providing additional confirmation that this market is headed higher. As long as prices can hold above support outlined in gray (.0082), then the weight of evidence suggests the first upside target is near the 161.8% extension of the late 2014-2016 range and prior support near .0098-.0099.
Tactically prices are extended after rallying 10% off the intraday lows on January 29th. I expect a retest of the breakout level near .0086 to allow the 200 day moving average to slope higher and momentum to reset after putting in a bearish divergence at the recent highs. With that being said, I think pullbacks are buyable as the weight of evidence suggests that the first upside price target from this move is at the 161.8% extension of the late 2014-2016 range, which also corresponds with prior support near .0091.
It’s also worth nothing that seasonally the Yen is in the middle of the worst three month period of the year, yet it continues to rally. This signals to me that there are larger forces at work in this market and that a neutral/bullish stance is appropriate. Sentiment and commercial hedger positioning have yet to reach extreme levels of optimism, and until they do, I don’t see any reason to suggest the bulls can’t run this market higher.
The Bottom Line: This structural breakout in the Yen has significant implications for US equities and risk assets around the globe. Whether you’re trading the currency directly or not, this inter-market relationship is not one you can ignore as a market participant.
Structurally this is a market that should be bought on any weakness as long as we’re above support at .0082 on the weekly chart. The first structural price target for this market is up near .0098-.0099, as discussed above.
While prices are extended in the short-term, tactical longs can continue to own this market above the top of the late 2014-2016 range near .0086 with a price target near .0091.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can. @BruniCharting
JC here – Yup, I’ve been talking about this one for a while now. I’ve referred to it as USD/JPY, but this is just the exact opposite. My 122 level is USD/JPY is 0082 in the yen futures. Structurally I think this is a monster. Short-term, however, a pull back here would be one of the catalysts to boost U.S. and Global stocks because of their really high negative correlation.
Tags: $6J_F $FXY $USDJPY $SPY
The author does not have a position in the mentioned securities at the time of publication.
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This post originally appeared on AllStarCharts.com on 02/16/2016.