Currency Charts Net Bullish After Intervention by Global Central Bankers
It's always a good idea to try to understand what the puppet masters wishes are. In this case the puppet masters in question are the US Fed and the Bank of Japan.
The AUDJPY has got a chance to break out to the upside – a symptom of Aussie dollar strength or yen weakness?
So, the Aussie dollar's weak, right? Not so fast! Look at the chart below of the Aussie dollar / Japanese yen currency cross (AUDJPY). It's not rolling over (yet), it is on the verge of closing the week / month out above key resistance at 88.627. It is currently trading at 88.745 – so the issue is still in doubt obviously. A breakout here would make sense from the standpoint that the Japanese are trying to force the Yen lower (more on that below). However, can it be only because of that? What about bullish / dovish murmurings out of China? What about global economic recovery and the subsequent increase in demand for commodities? Well, the bearish AUDUSD chart above is throwing a curve ball for us analysts for now. We'll have to wait to see (at the end of the week and on Monday) which chart is telling the truth – the AUDUSD or the AUDJPY – in terms of the strength of the Aussie.
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Remember what the Japanese are trying to do – weaken the yen to boost their economy.
As I mentioned above in the AUDJPY section, the Japanese are clearly trying to hold down their currency in an effort to boost exports, increase tourism and boost their economy. The chart below of the US dollar / Japanese yen cross (USDJPY) and the iShares Japan ETF (NYSEARCA:EWJ) was shown here weeks ago. At the time, I concluded that it would be a very good idea to put on long trades in the USDJPY and the EWJ as the Japanese didn't seem to show any signs of letting their foot off the gas pedal. It was obvious to me that the Bank of Japan wants the yen lower and their markets higher.
The USDJPY and the EWJ have made nice upside progress since that call was made. Now, the USDJPY is continuing to work toward a test of the very long-term downtrend line at around 88.5 (roughly 3,000 pips from current levels). The EWJ is also turning higher and has a lot of work to do to turn its chart long-term bullish (although, I am long of EWJ for client accounts currently with an upside target of 10.50 initially and > 12.00 long-term).
So, take from the EURJPY, the AUDJPY, and the USDJPY the obvious conclusions that the yen is going to remain under pressure until the BoJ gets the economic growth it wants. Also, take the set-ups outlined as nice opportunities for short to intermediate-term profits.
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Treasury yields falling after the failure of "Plan B" for the fiscal cliff – no technical damage done yet.
I'll keep it brief in the discussion on bonds this week (again) due to the interesting happenings in currency land. The yield on the 10-year US Treasury Note has been coming down over the last several days in reaction to the fiscal cliff headlines. No technical damage has been done yet and there's been no change to the wave count I had previously laid out for you. This current pullback in rates should have a limit to the downside of around 1.693 (on a daily closing basis). Any close below that will force me back to the drawing board in terms of the wave count. Unless and until that happens, though, my call for a move higher in interest rates to around 2% on the 10-year T-Note remains intact.
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I would have to say that things are a bit more bullish in the very short-term. However, a failure by the EURJPY or the AUDJPY to hold their breakouts would be concerning for the bulls. The bearish chart of the AUDUSD is already a yellow flag for this analyst. However, the bulls still have the edge for now.
I would urge everyone not to over-commit in either direction right here. Wait to see how the week / month / year closes out (and even the first few days of 2013) before jumping in on one side of the "risk on / risk off" trade with both feet.
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