The Japanese Yen is a market I rarely trade, but Friday’s price action and weekend comments from Japan’s central bank caught my attention. The overvaluation of the Yen due to external factors, such as its safe haven status, has been a long-standing problem. The Japanese economy per se does not justify its value, as was reiterated once again by the Bank of Japan’s Shirakawa.
The two charts below show how this market could be ready for a rally similar to that which occurred at the beginning of this year. Firstly, the Market Profile®* shows the downtrend that began in April this year. This followed a very similar pattern to last year, as the amount of time at the lows meant that the trend became bottom-heavy. More importantly, the low on Friday was the point of most time in that trend at 0.7826. Monday has seen a rare acceleration away from this level. The second chart is the daily continuation of the futures contract. Note how the trend line created at points A and B held the market’s next correction at point C. The market is now approaching this line once again. A closing break of this line would be the third sign of a change in trend, whilst a close on the spot above 0.7920 sets up the possibility of a swift rally to at least 0.8000 or even 0.8172.
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