Yen as a safe haven

[Mercury]

There are a number of so-called safe haven assets or markets that are frequently mentioned in trading and investing circles such as utilities, gold, USD and so on.  The Yen falls into this category mostly because, I think, in the past 30 years or so the Yen has a track record of appreciating against all currencies, including the USD.  This has a lot to do with the stagnation in the Japanese economy that spawned "Abenomics" in a probably futile attempt to trigger growth.  This is basically the same central bank policy as most other democracies.  In the case of Japan however the central bank has wound up effectively buying up stocks as well as loans.  Recipe for disaster.  In the short to medium term I don't see the Yen changing it role, although long term I think something big could happen.  If we start to see some fear grip the markets; if the recent drop is from the top of the bull on stocks; if interest rates start to tick up; if recession or worse starts to emerge as not just talk then a flight to safety is an obvious thing to track and get in on.  However if longer term this thing goes into a full on deflationary depression then USD will be the go to currency and the Japanese may get the thing they have long desired, through no action on their part, and that is a weaker Yen.

So much for the fundamentals, let's look at a couple of long term charts for the technicals.

On the Quarterly chart I see the following key points:

• Massive rally in the Yen since before the 1970s, which is at the heart of their economic issues as an exported of finished goods, well that and the commodity bull, as an importer of raw materials.  I am sure there are more qualified economist who would have a better handle on this than me.  My main point here is that this move went in a 1-5 down to the 2012 lows.
• Potential Head & Shoulders formation in progress but maybe that right shoulder is not yet in?  If this is a H&S then the neckline is formed by an excellent long term down-sloping trend-line with 3 great touches and a prior pivot touch as well.  A breakout through this will be a massive buy signal but that is far off in the future.
• We got a 1-5 rally off the all time low to wave 1 or A and over bought oscillators on all charts at the turn.

On the Weekly:

• There was a smaller scale Head & Shoulders at the wave 1 (or A -Purple) top and a nice neckline breakout to signal the bearish move.  This move down could be either a 1-5 or an A-B-C so mostly likely the wave is an A (Pink).
• Then the bear move channel was swiftly broken and a relief rally ensued that rose up to make a failed retest of the neckline.  This move is in an A-B-C, which is a retrace form and therefore I label this a wave B (pink) overall.  If this is correct then we should next see a bearish wave C move lower than the wave A (pink).
• I was thinking we would get a swift wave C but the market has gone into a protracted sideways consolidation that for a long time I couldn't unpick.
• With more price action I now think that this is a complex retrace.  We have had the first 2 main waves in A-B-C form so wave C is doing the same.  This first part (Blue A-B) is encompassed within a consolidation triangle (very large one).  Each leg is also in A-B-C form, lots of whipsaw price action consistent with both a consolidation phase and a complex retrace.
• Since wave B (blue) we have had more whipsaw that looks to be a couple of 1-2s (or A-Bs) and now price has arrived at the lower line of the consolidation channel. 

So a breakout to the downside brings up a test of the previous lows (wave A pink - 9900 area) and a break of this support means we are indeed in a wave C which has a number of potential end points, the most bearish of which would be a right hand shoulder to complete the H&S formation.  If that occurs then a long lasting bull market on this pair would ensue.

I will seek to short this market on a sustained breakout that, in the main, would occur either on sustained USD weakness (which we are probably due) and/or stocks reverting to a bearish stance (which is eminently possible).  Once we see a retrace turn (which could be months away) AND if this is consistent with a long term recession and stock market bearish move I would look to catch the bull market in the USD via this pair as a preference vs any other pair.

 

Edit: Also forgot to mention that for me Yen strength is sometimes a leading bearish indicator for stocks.  The Yen has been appreciating vs USD since 24 April.  I have mentioned this before on my stock indices thread.  It was one of the macro factors that was prepping me to go Short stocks on a good set up, which we got on 1 August.

Edited August 9, 2019 by Mercury

[dmedin]

Very nice analysis (which I have not yet fully digested), my own humble opinion is that Yen is not worth trading because it's so heavily manipulated.

[TheGuru12]

Just posted this over on another thread.

 

WITHIN THE LAST SEVERAL DAYS...

HSBC... Deutsche and some other BIG banks just loaned the PBOC 450 BILLION to help them prevent their currency from total collapse..

The backstory.. The CEO of HSBC has just been fired for it..

It was said China has 3 trillion in US reserves but now it is being revealed..

1 trillion was earmarked for the belt and road initiative and the other trillions have been tied up in swaps and derivatives as the currency has already dropped 30% to 7.5.

It is estimated the currency will eventually devalue another 40%.

... Long gold 😉 

 

[Mercury]

Didn't see you post until just now @dmedin, don't see the Yen as any more manipulated than any other government backed currency and don't get me started on crypto manipulations (think Ponzi!).  As I mentioned somewhere else regarding manipulation, except for artificial pegging (e.g. Swiss Franc to Euro), I ignore reports of manipulation as this is endemic in all markets, financial and otherwise.  This is about human nature; I use technical analysis to assess the impact of this human nature on price action and trade triggers according to my methodology.

In recent times USDJPY seems to have been inversely correlated to stocks, which is not unusual if the Yen is acting as a safe haven, and with stocks taking a tumble it is not surprising to see associated Yen strength.  However what would happen in a period where stocks rise while the USD falls?  Would USDJPY fall or rise?  It seems clear to me that USD has broken lower i a long awaited correction bear move.  This needs to be confirmed with some lower lows but for now price action is heading this way.  Based on the technicals and price action I see USDJPY as in a bearish phase.  A break lower past recent lows would be needed to keep this scenario live and there is some longer term support to get through but once it does there is nothing much to stop this pair hitting 10000 and if this doesn't hold then the right had should scenario I outlined in the previous post would surely be on.  I don't see this pair rising again until the USD bearish phase is done and there is a flood back into USD in a flight to safety that overwhelms markets.  But that is some way off.  It is most likely that this flood will not happen on the first stocks (and not just stocks) top put and drop but rather on the major drop which would come after a relief rally.  Even if stocks do keel over this Autumn, as some are predicting, it may take 9 months to a year for the drop and relief rally to play out.  That puts us in Autumn 2020, which is about when a recession may get officially called and hey presto, mega crash (wave 3).

[phillo]

Strangely enough I just watched this - sort of an associated video   https://www.youtube.com/watch?v=GaWg-cuEHVs

[phillo]

since April, this one has been stepping down the levels & still looks likely to continue

[Mercury]

Agree @elle, that is what I am seeing too.

[phillo]

so true @TrendFollower , folks get angry over it - don't fight, learn to recognize it & take advantage of it

[phillo]

On ‎24‎/‎08‎/‎2019 at 14:56, elle said:

since April, this one has been stepping down the levels & still looks likely to continue

 

[Mercury]

Since posting my bearish view on this pair the market has taken a more bullish turn but my weekly chart Triangle has not yet been broken.  I see this move as a relief rally and agree with @elle that the pair have been stepping down steadily long term.  With USD seemingly turning bearish (although not 100% all in yet - gotta wait for the Fed on Wednesday perhaps) but in a bullish retrace right now; and with stocks having gone on a bullish run coincident with the bullishness on USDJPY; AND with a possible bearish phase to come on stock indices, this pair might just roll over again into another step down that breaks out of the long term Triangle.  I wont reprise my long term road map, see previous posts, but shorter term I see a pennant as having formed and now price is rising to retest this pennant and will do so around the Fib 50% it looks like.  When this happens, and if it is coincident with a USD turn back bearish and possible stock indices also going bearish, then I foresee USDJPY running hard south.  I think this pair will run further and harder against the USD than other due to the flight to safety element of the Yen, but this will take some time.  First up I want to see that failed retest at the Fib 50% or thereabouts, chance to get Short and then a breakout of the long term Triangle lower line.

[Mercury]

I watched an interesting expert interview on RealVision yesterday with Simon White of Variant Perception, a macro research outfit.  His thesis is the first one that fixed a conundrum playing in my mind, which is the question of whether we will see a deflationary recession or a hyper inflationary resolution to the current economic malaise.  I could see aspects on both in the technical set ups of various markets.  Proponents of the former are calling a 1929 type event, and you can see where they are coming from easily enough but they also call for a related bear market on precious metals.  My bias on PMs is for a large bull market but I can't square it with the deflation scenario.  Also while consumer prices may be high underlying commodity prices are not particularly high.  The Hyper Inflation supporters suggest the central banks will eventually get the inflation they are seeking with their theoretical based policies BUT that they will not be able to control it and therefore hyper inflation, which would be good for precious metals and frankly commodities in general.  There was also some chatter about a commodity super cycle being in a downwards trajectory, which would support the deflationary scenario BUT if you look at individual commodity charts, say coffee or silver or natural gas, they are anything but high, in fact quite the opposite!  You see my conundrum...

So the punchline is that Simon White thinks central banks will switch from their current strategies to what seems to amount to helicopter money, there is a lot of technical discussion in the piece, which I wont attempt to summarise, but long story short the current policies have not encouraged corporates to invest, rather they have been engaged in Financial engineering that has resulted in the rich getting richer (on paper at least) and increased social unrest as the rest of us express our dissatisfaction with this situation (including having to work multiple gig jobs to survive - so much for full employment!).  The thesis is that central banks will act on this social pressure and in doing so we will first get a period of deflation (certainly of asset values) followed by hyper inflation of real assets.  The result of this will be a flight away from Financials (stocks etc) into real assets (i.e. commodities and precious metals).  This resonates with my thinking (see my thread on Dr. Copper where I suggested a one or the other resolution to the issue and on coffee where I am calling a major bull market in due course).  If this holds true then we might expect further deflationary drops on commodities (and probably PMs - are we already in this?) before monster rallies.  We may expect stocks to rollover and die, maybe bonds too eventually.  I persoanlly also expect house prices to plumet, further fueling a flight out of financials as property owners feel poorer and or get caught in negative equity (a consequence unknown to anyone who bought a house post the early 1990s).

I am writing his on the USDJPY thread because Mr. White also touched on the currency war aspect of the kind of central bank policy he is foreseeing.  And he sees Japan as the canary in the mine.  Again long story short he expects to see Japan really go to town on these policies, they are all in with Abenomics already and haven't quite got the results they are looking for yet.  He forecasts that this will at first go against them with the Yen strengthening and then they will finally get what they are looking for, a huge devaluing on the Yen against the USD.  This macro assessment exactly matches my technical analysis and is much more compelling than my own poor macro assessment.

So much for all that, and if you have access I would highly recommend checking out the interview with Simon White, but where are we on the charts.  My long term assessment has been posted previously on this thread but my previous post was tracking a potential retest of a pennant, a point I would be expecting a turn back to the bearish side.  This is what we got overnight with a hit on the Fib 50% as well and a sharp drop.  This morning we are seeing a short term retrace, which may already have concluded or could run up a little further.  We also saw a spike and drop in the Nikkei, which is a typical correlation.  I do anticipate further falls in the Nikkei to support the Yen strength short to medium term, after than I think USD weakness will be the principal driver of this pair.

I am already Short this market and looking for a break of the 10,740 support zone to confirm the turn.  The potential on this one could be large, maybe all the way to 8,000 but we need to see a breakout of the long term Triangle and horizontal support zone around 10,400 to get excited about that.

 

[Mercury]

That USDJPY turn looks to be confirmed with a break of a potential ending channel in confluence with the Fib 50% and failed retest of the previous Pennant formation.  A solid bearish move on the last two daily candles of the week in line with a late stocks drop is boding well for a sustained medium term bearish phase for this pair.  This may be at odds with other pairs for a few days or so but I expect USD to turn bearish sometime next week, in which case I see this pair dropping hard, which would be in line with the EWT set up of a wave 3 down.  A continued period of stocks weakness would add to the momentum on this pair.

[Mercury]

The Yen joins the anti USD party with a failed retest of the channel breakout zone.  break of near term support will be key.  Will the Nikkei follow?

[Mercury]

USDJPY hitting an important resistance area on the Fib 76/78% horizontal zone plus a retest of the previous channel line.  A turn down in USD plus a bearish phase in stocks would be a big push down for this pair, especially after the overnight bearishness on the Nikkei.

[Mercury]

USDJPY put in a strong retrace rally but fell short of a higher high, effective ST double top with another test of the Fib 50% and the ST channel line (pink) on NMD.  Now appears to be turning bearish again as stocks do likewise.  Perhaps we are also seeing DX turn bearish and if it does that would be a double drive for this pair, which should drive it much further and likely faster than other USD pairs, in line with my lead scenario road map.  I can't yet rule out another test of the daily chart pennant line (blue) so stops are just above the previous high.

[Mercury]

Kit Juckes, chief foreign exchange strategist at Societe Generale, in an interview with Real Vision said, "I will definitely be buying the Yen persistently... we will trade below $100 Yen over the course of the next 6 months, I'm sure of that... It will happen overnight... it will happen fast..."

He is Bearish USD generally but, if I understand him correctly, only short to medium term as he stills sees the US as the ultimate safe haven when the long term cycle end full hits.

USDJPY is currently in a short term rally phase, will need to see that play out and turn before getting back Short.

[Mercury]

As usual, the Yen is strengthening as stocks (Nikkei) keel over.  USDJPY has been in a consolidation pattern for some time but trending downwards so my view has been that this pair will eventually drop much further come what may.  This could also be driven by USD weakness, a subject of much debate in recent times.  A dual tailwind of stocks falling and USD falling would send this pair further than others, which is what my analysis was suggesting could happen.

As for now, the pair have seemingly recently topped out and may now approach a key channel breakout point as stocks decline.

[Mercury]

Breakout!  Hmm, USD driven or in advance of stocks I wonder...

[dmedin]

[Mercury]

The case for a Yen rally (USDJPY bear) is strengthening despite large cap USD stock indices advances, or perhaps because of them as the gas behind these stocks rallies seems rather watered down: low and declining volumes; Vix at very low (some argue complacency) levels; COT data is weak and the net positions declined (more towards the bearish side) last week; non US large caps divergent from the large caps; HK, China 50, FTSE100, Nikkei and Russell 2000 all put in bearish weekly candles last week with DAX showing a doji.  Gold and Silver rallying and the Yen rallying.  All in all I remain on the lookout for a bearish trigger on stocks, which we have not yet got, except perhaps on the FTSE100.  But on the Yen the breakout is on and currently the channel is being retested.  If the USD continues its current bearish direction and we get any stumbling in stocks then this pair will hammer down.  My lead scenario is for this pair to make it past parity and probably a good deal lower than that. 

[Mercury]

Yen breakout to the Bearish side in prog.  Supports a period of either or both USD weakness and Stocks weakness.  With Gold/Silver in a rally it is likely both.

 

[Mercury]

USDJPY looks remarkably similar to the DX basket in recent times with a top out and 1-2 retrace to the Fib 62% this time.  Now a break of a lower channel line and failed retest is setting up a bearish phase.  Falling USD more broadly will help the case but we probably need to see falling Nikkei as well to drive this pair lower.  If we do get both then this pair could outperform all other main USD pairings.

[dmedin]

USD/Yen is showing what I call a clusterfck pattern:

[Mercury]

Predictably the Yen strengthened overnight as the Nikkei spiked and dropped.  But USD may also be turning, which would provide a double impetus for Yen strength.  After a top and turn at the top line of my daily chart Triangle pattern we have seen a potential breakout of the lower line and now a possible failed retest with a spike through overshoot at the Fib 62% (spike to Fib 76/78%).  The retrace was in an A-B-C form.  Let's see if price follows up with a confirmatory drop away...

[Mercury]

SO USDJPY made a higher high and I am forced to redraw my Triangle, c'est la guerre!  But stocks took a little stumble and this pair put in a potential Doji candle on Friday.  If this is backed up with a bearish candle on Monday/Tuesday then a break of the lower Triangle line may be on.  I am Short with a close stop above the recent high.

[Mercury]

USDJPY backs up the Doji candle a significant bearish drop, which confirms the doji as a turning signal for me, in addition to all the other signals I reference and importantly the fact that both USD DX and stocks took a tumble today.

Now price is heading for the lower channel line, a break of which could signal a long term bearish phase, which is in effect a continuation of the previous bearish phase and the Triangle price is currently contained in would be merely a consolidation retrace within this longer term move, as previously suggested may be the case.

 

[Mercury]

USDJPY is setting up to make a run at the lower channel support line.  A strong break here will be bearish for both USD and Stocks IMO.

[dmedin]

Surely the August-Sept movement, which was extremely large compared to what came after, was the top?

[Level_Trader]

It is tethering on the edge, a weekly close below 10840-50 will open the floodgates.

 

[Mercury]

14 hours ago, Level_Trader said:

It is tethering on the edge, a weekly close below 10840-50 will open the floodgates.

10820 for me @Level_Traderbut I agree with you overall.  First though, given stocks and USD relief rally, and based on this pairs own intrinsic technicals, I see a rally back to the 10900ish area for a retest on the daily channel line, the prior bear move pennant breakout and the Fib 50/62%.  The bear move looks like a clean 1-5 (motive trend direction change if we then get an A-B-C and lower low) and the was PMD at the recent wave 1 turn.  As I mentioned in my stock indices thread I think ADP and more likely US ISM non manufacturing data may play a role here, one way or the other.