09-13-2017: December Japanese Yen: North Korea Tensions Ease but Other Negatives to Safe Haven Remain

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calend Spread

Level Table
Other Factors

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Although in the past currencies have moved within well-established trends for long periods of time, recent performance of the Yen has been very reactive. This would place it near the top of a cycle as it "meanders." The umph to push it to the top were recent provocations by North Korea and global political instability. This appears to be rapidly ameliorating leaving analysts to suggest strength in the Yen was a recent "knee jerk" reaction. There are negative factors for investors about the Yen including recently untried negative interest rate policies of the Bank of Japan and doubt on the part of analysts that this currency should be considered a "safe haven" currency.

Intermarket Analysis

We fed the Japanese Yen, Swiss Franc, and Euro Currrency into a neural network to get the following result:
(These currencies are related by being considered by some investors as "safe haven" currencies.)

Parabolic Chart

December Japanese Yen:

Parabolic Chart

Nirvana Chart

December Japanese Yen:

Initial Chart

News Analysis

After a recent quiet spell from North Korea, the Yen has continued to slide away from recent highs as safe-haven support dissipates. Recent Japanese data included the largest monthly gain for machinery orders since January, 2016, but that did not stem safe-haven outflows. Analysts believe the Yen will remain on the defensive as long as risk sentiment continues to improve. The Dollar against the Yen has improved as it benefitted from "what didn't happen" over teh weekend with Hurricane Irma. The storm moving away from the Atlanic Coast allowed that things that could have been much worse didn't happen. Further, against the backdrop of global risk-on trade, a strong pickup in the U.S. Treasury bond y ields underpinned the U.S. Dollar demand assisting in a recoveryi of Dollar values from near 10-month lows.

Looking at a weekly basis, the Yen has gained gainst the U.S. Dollar as the Dollar was sold aggressively in foreign exchange markets. The reduced prospect of rate hikes from the U.S. Federal Reserve led Fed traders to offload long Dollar positions helping to push the Yen higher. Japan did see a fall in its second quarter GDP of 0.60% which did not help it.

Speculators increased bearish bets on the Yen reversing positions of the last seven weeks. Several Japanese economic reports are due to come out including the Tankan business survey report for September. Economic developments in Japan haven't been primary influences of the currency lately since investors aren't expecting any changes to the quantitative easing program of the Bank of Japan. Barring a sharp rebound in the U.S. Dollar, most analysts believe the Japanese Yen should appreciate further.

Japan machinery orders blew forecasts to pieces, rising 8% on the month when the markets had looked for a 4% gain. A U.S.-Dollar focused Yen showed little reaction. On the year, Japan's machinery orders fell by 7.5%, a shade better than a 7.8% slide forecast. This volatile data series is used by investors to take a stab at estimating Japanese capital expenditure levels between six and nine months from the date of release of the data. That's partly because these figures are viewed as having little chance of altering the Bank of Japan's monetary policy. Price inflation would have to reach 2% to prompt BOJ action whereas it now hovers at 0.4%.

Despite Japan's position as a likely target of freshly erupting North Korean ire, traders still see the Yen as a safe haven currency and are pushing it higher. That is in stark contrast to another country on the North's hit list, South Korea. There, South Korea's currency showed a market drop. One reason for the difference is that Japan is a net overseas investor, both on retail and institutional levels. Japanese investors having non-Yen assets still face a risk because they are exposed to foreign-exchange volatility. South Korea on the other hand is a net creditor with its financial institutions dependent upon foreign credit. With the U.S. and Japan likely to be drawn into any potential conflict with North Korea, the Euro and Swiss Franc seem to be better safe haven choices.

Funds are rolling back into the Yen, but investors are holding back from investing in Japanese assets such as equities due to Korean peninsula political tensions. Some analysts think North Korea has only marginally improved its missile capacity and perceived threats are all out of proportion to reality.

Japan's former currency czar Eisuke Sakakibara said the Dollar could fall below 100 Yen by year end on U.S. President Trump's perceived support for a weak Dollar, but cautioned that any Yen-selling intervention by Tokyo might be counterproductive. Sakakibara formerly actively led currency intervention to stem a strong Yen. Lately, he has criticized a weak Yen casting him into one of the biggest risks to Japan's export-reliant economy. Trade and currency policy are likely to continue to be high on any agenda for summit meetings between Prime Minister Ave and Trump. Trump perceives a weak Dollar policy will lead to expectations of a slower Federal Reserve rate hike policy and an end to Bank of Japan's aggressive monetary stimulus.

One must not lose sight of the fact that Japan has negative interest rates, so why is the Yen getting stronger? Outflows of the Yen to other currencies are being increasingly hedged, limiting their effect. This according to Barclays Bank. Japan has been a past combatant. A decade ago it was seen as an aggressive intervener, selling Yen to weaken the currency and help its exporters. But more action is unlikely at this time. Earlier, Prime Minister Abe sent the Yen higher as he told the Wall Street Journal that countries should avoid seeking to weaken their currencies with "arbitary intervenion."

Trading Economics global macro economic models and analysts expectations expect the Yen to trade at 108.00 to the Dollar by the end of this quater and at 105.00 in the next 12 months.

Our assessment is that the Yen is still in a net weakening trend, subject to knee-jerk reactions to any North Korean threats, and lingering with many negative factors such as aggressive government stimulus measures weakening currency value and negative interest rates policy.

Point & Figure Chart

107.0I                                                                  T  9/11
     I IMM - Dec-17 Japanese Yen, 12.5 m yen, c/y  Cm.=0.03  Lim.= 0.3
     IO    X
     IOX   XO                              X
     IOXOX XO                              XOX XOX
     IOXOX XO                              XOXOXOXO
     IOXO OXO                              XOXOXOXO
     IOX  O O                              XOXOXOXO  X
     IO     O                              X  OXOXO  XO
     I      O                              X  OXOXOX XO
     I      OX                           X X  OXO OXOXO
     I      OXO                          XOX  OX  OXOXO
     I      OXO                        X XO   OX      O
     I      OXO                        XOX    OX      O
     I      OXO                        XOX    O       O
     I      OXO                        XOX            O
     I        O                      XOXOX            O
     I        O                      XOXOX            O
     I        O                      XOXOX            O        X   X
     I        O                      XOXOX            O        XO  X
     I        O                XOXOXOX                O        XOXOX
     I        O                XOXOXOX                O        XOXOX
     I        O                XOXOXO                 O        XOXOX
     I        O                XO O                   O    X X XOXOX
     I        OX               X                      OXOXOXOXOXOXOX
     I        OXOX             X                      OXOXOXO OXO OX
     I        OXOXO    X     X X                      OXO O   O   O
     I        OXOXO    XO    XOX                      OX
     I        OXOXOXO  XOX   XOX                      OX
     I        OXO OXO  XOXO  XOX                      O
     I        O   OXO  XOXO  XOX
     I            O OX XO OX XOX
     I              OXOX  OXOX
     I              OXOX  O OX
     I              OXO     O
     I              O
      1      1111         1111                    11111
The above chart is giving a conventional buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Thrust." It is giving a buy signal.

Internal Printout 1

Results of "Thrust" for Japanese Yen (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,250. Initial margin on a single contract is $2750. Use of options is advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-short, except for a blip in the latest week.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that an uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Japanese Yen March 95 Call and Sell (1) Japanese Yen March 92 Call @ 0.0002 to the sell side or better.

o 1 o 2 o 3 0 4 o 5

Calendar Spread

What the Dec. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.47 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.20 or wider selling the far as prices are fallilng and then buying the near. At this time, we appear to be at the buy the far, sell the near point.

Level Table:

Level Table

The path of least resistance is down.
104.0|                                                                  T  9/11
 IMM - Dec-17 Japanese Yen, 12.5 m yen, c/y  Cm.=0.03  Lim.= 0.3
 84.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.732
           1 1 1 1 1 1                                                
       9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 5 6 6 7 7 8 8 9           9
       1 2 1 2 0 2 0 2 0 2 0 1 0 2 0 1 0 1 3 1 2 1 2 1 2 0           1
       3 6 0 4 7 1 6 0 5 0 3 7 6 0 3 8 2 6 1 4 8 3 7 0 4 8           1

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 9/09 ).

Intraday Chart

                 Risk Versus Opportunity Report

                  JYZ7    December Japanese Yen

                      High Price:  93.76
                   Current Price:  91.86
                       Low Price:  88.03

                            Risk: -0.042
                     Opportunity: -0.084

                    (O/R) Ratio =  2.016

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart - 1
News - 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table - 1
Other Factors + 1
Total - 3
Place 5 December Japanese Yen on a Sell Watch with stoploss @ +1.03 above the get-in point when recent price is represented as "91.86".