Yen: major trend reversal at hand

All the research I have read so far suggests JPY should be appreciating. Quick look at charts confirm that: from Jan to May/June 1995 Nikkei 225 fell but JPY appreciated as private sector repatriated money to rebuild the damaged infrastructure. However, repatriations turned short-lived and after only two months outflows resumed while Yen kept appreciating for a couple months more.

Currently, JPY is depreciating confounding all those opinions based on history. I can think of two reasons why yen is appreciating. We can assume that coordinated CB intervention is proving effective or we can assume that markets think that government will deal with the crisis by ordering CB to print Yen instead of repatriations (i.e. currency debasement) or both. I like the latter.

As per my previous posts I was bearish Yen and thought of latest triangle as a reversal rather than continuation pattern. In ¼ of cases triangles come at the end of mature trends. EURJPY also looked bullish to me. When earthquake hit, I did not long JPY at the time because of volatility and of potential CB intervention. I sold on a rally back to the triangle but my stop loss was hit a couple of days later after penetrating into triangle.

One thing I should have noticed but failed to was a bullish hammer which was confirmed the next day. My Netdania charts did not show that unfortunately. So, my loss is a payment for being lazy. Another mistake that I should have considered was that a final selloff in USD took place in thin markets. That should have sent my lights blinking as to the validity of the move. One technicality and one factor that I will keep in mind in future. Therefore, this time I will use charts from Bloomberg since these are the charts that big boys focus on.

My main argument is that JPY has almost bottomed out and multi month base building process seems almost complete. I am still convinced JPY will decline from here and long term targets are at least 95 and then 100. Best risk to reward comes from shorting Yen going forward on any meaningful rally.

Monthly JPY – almost

Last month was a bullish hammer but we need to wait till the end of April for final confirmation. But MACD is in positive divergence and bullish crossover took place

Weekly JPY – almost

Pro:

1. Classical TA – multi month bottom building process appears complete. Higher close this week will confirm double bottom. Also earthquake/radiation sell off closed on higher low.

2. Candlesticks – bullish hammer confirmed.

3. MACD: bullish continuation hook and divergence in place. MACD hooks are very reliable.

Contra:

1. Classical TA – major down trendline form Aug 2008 is nearby and USDJPY needs to close above it to confirm.

2. Weekly 50MA currently at 0.85 is nearby to act as a resistance.

Daily JPY - short

On the break from triangle, JPY reached implied target in three days and now what we have is a pattern failure of sorts. This is a typical triangle reversal pattern. If yen comes back to test around 83.60 (top of the triangle and 200MA), it is a great spot to short it.

EURJPY - as bullish as it can get

Monthly - bullish

We have a bullish hammer (still needs confirmation) and it engulfs 10 previous candles when we compare on a close to close basis. MACD did a bullish crossover as well. In this chart you can see fractal nature of price movements. Quite often you can see a security make a low after a steep fall (Wave 3 in Elliott Wave Theory), then rise up again on profit taking (Wave 4) and then plunge to a lower low (Wave 5) before reversing for good. One can see that in any timeframe. One good example is S&P500 low in Oct 2008 and lower low in Mar 2009. I do not need to tell what happened afterwards.

Weekly - bullish

Multi-month bases building process complete as EURJPY broke up from the flat channel. There are 3 bottoms supported by bullish diverging MACD which finally got above zero. The last time it was above zero was in late 2009. 120 remains a good resistance for the up-move. I do not see any reason why it should not reach its previous high just shy of 140.  

GBPJPY – bullish

Monthly - bullish

We have exactly the same story like in monthly EURJPY.  This pair is in the process of building a Rounding Bottom. MACD is supportive

Weekly - bullish

Last week was the highest weekly close since Aug 2010. Channel was broken on the upside and MACD is above zero. First solid resistance comes at 141.50 area. Top at 162 is reachable.

AUDJPY

Weekly

Target of 92.85 is feasible and unlike USD, EUR and JPY, AUD pays a good carry as well

 P.S.

Although USDJPY has not confirmed short Yen idea yet, what I have at hand is good than enough for me to short Yen. I would not be buying any of these pairs right now as they are deeply overbought and instead will be waiting for dips to buy. I will update on those opportunities as they arise.

Post update or P.S.2:
Market commentators cite rising rate expectations in G7 as the reason Yen is getting trashed and that sounds reasonable enough.