Gloomy Days Ahead For The Yen by Michael A. Gayed

in syndication •  8 months ago 


  • JPY pairs and USDJPY are lagging the move we've seen in the stock market.
  • A Bloomberg’s forecast for the Q4 2019 reveals that the Yen is poised to see the biggest advance into the end of the year.
  • Heading into the end of the year and with such a bearish sentiment on JPY pairs, it feels like a perfect storm builds for the JPY pairs to squeeze even.
  • This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Get started today »

I am advocating a weak yen to a certain extent. – Naoto Kan

That is not the point of this article. I'm advocating for a contrarian trade – a much weaker Yen (NYSEARCA:FXY) ahead. One month ago, I was arguing that the JPY pairs and USDJPY, in particular, are lagging the move we've seen in the stock market.

The argument was that the USDJPY pair almost fully retraced the rally that followed Trump's election. A stunning decoupling from the US equities. While US indices made new highs, the USDJPY didn’t follow. Curiously enough, it strongly correlated with the stock market corrections, but not participating in its rallies.

Not much changed in the meantime, with the pair consolidating the 108 handle. But as we move into the end of year trading, a contrarian approach might trigger a rally.

To start with, the stock market picture looks mixed. In one of the last Lead-Lag Reports, I mentioned that analysts are pretty optimistic about revenue and earnings estimates for 2020, questioning if this is really justified or not.

There's a reason to be cautious. A Bank of America (NYSE:BAC) survey shows how bearish investors are despite rallies, favoring defensive assets like cash, investment trusts, and staple stocks.

The bullish case for stocks doesn't look right. It doesn't help a bearish JPY scenario.

Furthermore, a Bloomberg’s forecast for the Q4 2019 reveals that the Yen is poised to see the biggest advance into the end of the year.

Yet, the JPY pairs rallied these last weeks. USDJPY, EURJPY, AUDJPY, GBPJPY and co., they’re all up, especially the crosses. Is the recent rally in the USDJPY from 104 to 108 the start of a stronger mover? Or it’ll fade towards the end of the year as pointed by the Bloomberg’s forecast?

In Japan, core machine orders had a 2nd straight MoM decline and the largest annual fall since late 2014. Data for the non-manufacturing sector is particularly troubling as it fell 12.1% from a year ago.

But above all, the price action on the JPY pairs isn’t bearish. That’s all that matters from a trader’s perspective.

If anything, the USDJPY evolves in a massive bullish flag formation. The mother of all bullish flags has a projected measured move above the double top that caped the Trump’s rally in 2016. More precisely, well above the 126 mark!

A bullish flag is a tricky technical pattern, to say the least. Here’s why. First, it doesn’t have a time limit for the flag’s formation. The best trade to be in is during the poll (if you’re lucky and are in for different reasons) or on the breakout. Second, when there’s a downward angle, the market often tries to invalidate the flag (i.e. trying for the poll’s lows).

...Read the Full Article On Michael A. Gayed's Blog on Seeking Alpha

Author Bio:

leadlagreport bio.png

This article was written by Michael A. Gayed. An author on Seeking Alpha and founder of the Lead Lag Report.

Steem Account: @leadlagreport
Twitter Account: leadlagreport

Learn more about Michael A. Gayed on Seeking Alpha

Steem Account Status: Unclaimed

Are you Michael A. Gayed (a.k.a. leadlagreport)? If so, you have a Steem account that is unclaimed with pending cryptocurrency rewards sitting in it from your content. Your account was reserved by the Steemleo team and is receiving the rewards of all posts syndicated from your content on other sites.

If you want to claim this account and the rewards that it has been collecting, please contact the Steemleo team via twitter or discord to claim the account. You can also view the rewards currently sitting in the account by visiting the wallet page for this account.

What is Steemleo Content Syndication?

The Steemleo community is syndicating high-quality financial content from across the internet. We're also creating free Steem accounts for the authors of that content who have not yet discovered the Steem blockchain as a means to monetizing their content and we're listing those accounts as the 100% beneficiaries to all the rewards. If you want to learn more about Steemleo's content syndication strategy, click here.

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  

Congratulations @leo.syndication! You have completed the following achievement on the Steem blockchain and have been rewarded with new badge(s) :

You received more than 6000 upvotes. Your next target is to reach 7000 upvotes.

You can view your badges on your Steem Board and compare to others on the Steem Ranking
If you no longer want to receive notifications, reply to this comment with the word STOP

Do not miss the last post from @steemitboard:

SteemFest Meet The Stemians Contest - The mysterious rule revealed
SteemFest⁴ - Meet the Steemians Contest
Vote for @Steemitboard as a witness to get one more award and increased upvotes!