Let’s take a look at the opportunity in more detail and the logic behind the trade.
Our view is the Dollar is set for a big move up on all the major currencies with the exception being the Yen and selling the Dollar and buying the Yen, is a great contrary trade and while most people are not bullish Yen, that doesn’t concern me as most traders lose.
Everyone is bearish on the Japanese economy and you can see numerous reports on why it should go down but bearish news is NOT pushing it lower and that’s a bullish sign.
If you look at a chart of Dollar Yen, you will see it has heavy resistance around the 84.00 level and while prices may break above the move will be short lived and the Yen will push up to understand why we need to look at the global economic backdrop.
Most of the time the Yen moves with the other major currencies against the Dollar but in times of risk aversion and financial turmoil, the Yen not only trades in the same direction as the US dollar it outperforms it.
For this to occur, risk assets such as equities, have to fall heavily and they look set to do just that. The stock market is at a bullish extreme – prices have risen on low volume and the put/call ratio is at an extreme and warning of a top. The stock markets in the US are overbought but so are stocks all around the world. Were trading above levels before the Lehman Brothers collapse but the economy today is in far worse shape than it was then.
The Dollar will rise on stock market falls but so to will the Yen, its happened in the past and will happen again. There will be a high demand for Bonds and the Japanese who are the among the world’s biggest savers will repatriate funds and boost the Yen.
For traders looking for a good long term trade the Long side of the Yen on the Dollar looks an excellent opportunity, the risk is low and the reward is high and the fact most commentators are looking for a Yen fall which is a bullish sign.
Look to key of resistance and sell the Dollar on a downturn in momentum and get ready for a great trend and profit.