Looking For a Tradeable Bounce in the Currency Wars

The Japanese Yen had a monster run against the US Dollar off of the 2007 bottom. Peaking late last year the government has since been on a path of devaluing the currency, joining the US and the Euro-zone in a race to the bottom. The Japanese have been winning this race over the last 4 months with the Yen falling over 20% against the US Dollar. The weekly chart of the ETF tracking the Yen, $FXY, shows the steep pullback but gives some hope for a tradeable bounce as well. First

fxy

it has retraced 50% of the major move higher. If it is to find support this is a likely place for it to happen. Second, if you look a the Relative Strength Index (RSI) it is at an extremely oversold level. Prior to this run lower it had never seen a level under 25. If we focus in on the daily chart you can see a divergence has already come in with the RSI turning higher as the price continued lower over

fxy close

the last 6 weeks. The Yen may be ready to turn back higher with the current consolidation. What does this mean? It is not time to go out and buy the Yen yet but it is time to get ready and definitely time to take off some shorts if you have been playing that side (Yes that was for you Dennis Gartman).

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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