The plight of the euro has caused a movement into the USD and produced a breakout versus the yen. For the past 12 days the yen has remained confined to a narrow range between 90.25 and 91. Currently we are trading at 91.93, above a major trendline that extends back to a spike high of Aug. 10 2009. Perhaps some stops will be exposed if the market climbs above the 92.13 high made in February. Resistance until we get to the 93 handle appears slight. There have been two buy signals given by the MACD, first a cross over above the 9 day moving average and again on March 17 when the MACD crossed the zero line.
Several things are perplexing about the yen. First, the total open interest in the yen has been very small, only 97,000 contracts (futures only) this morning. This compared with 153,000 in the C$ and 195,000 in the euro. The COT report also shows that the large specs, probably funds, were long the market and the small specs have been short the yen. Usually the large and small specs are on the same side of the market, but not in the yen. With the break in the yen to the 92 handle the small specs have been on the winning side of the market.
Often there is an inverse correlation between the stock market and the yen, but today a lot of equity markets are lower, as is the yen. It will be interesting to see what the open interest in the futures market is doing today. Yesterday, with the trading range tightly contained, the OI did go down 3831 contracts.
The economic news from Japan has been mixed. Japanese exports for February did increase 45.3% from the previous year, which showcased a 47.7% increase to China. On the negative side, Japan did report a 2.4% drop in supermarket sales which were off for the 15th month in a row. US economic news like that in Japan was inconclusive. Core durable goods orders were a little better than forecast, up 0.9% versus an anticipated 0.6%, but the new home sales were a flop and oil inventory was much larger than expected. Tomorrow will feature US weekly unemployment claims and Consumer Price Index year to year comparisons in Japan.
This week the US Treasury is conducting an auction for $118B 2- , 5-, and 7-year notes. Today's auction was not well received and the 10-year note yield has increased to 3.82%. The frugal Japanese have trillions in saving and many of these investments mature this year. With the Japanese 10-year yielding only 1.35%, there will certainly be yen sold to buy US Treasuries. Also the Bank of Japan has recently loosened the money supply and has given assurance that rates are going to remain low for quite a while. With the yen attractive as the lending currency in the carry trade, this also makes for yen sellers.
We remain bearish of the yen versus the USD and the A$. Once the excitement from today's bullish flurry slows down, a retreat to the previous trendline at around 91.70 to 92 looks to be a level to try the long side of the USD versus the yen. The A$ is currently making a new swing high versus the yen, trading at 83.64. A 50 pip pullback should be bought, as a return to the 86 level is possible. (Click to enlarge)
Disclosure: No positions
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