Yen bounce suggests weakness for the Nikkei

The yen is beginning to outperform the USD. I’ve noted in the past that when the Yen rises, the Nikki stock market tends to underperform. Here’s a blog explaining that phenomenon.

Below is the Yen/USD chart. Note the bounce off of support for the Yen/USD ratio. This suggests the potential for a nice rally on the Yen going forward. This might be a great play for US investors. The Canadian dollar has been outperforming the Yen, so it probably doesn’t offer as much upside for Canadian investors looking for a currency trade right now. Mind you, the loony is just now coming into the $0.79 resistance point I mentioned on this blog.

Japanes Yen US Dollar chart showing bounce off of support for the JPY/USD ratio

 

My outlook was for a likely target of $0.79/USD for the loony, with a best case scenario of $0.80. So perhaps there will be an opportunity coming for Canadians to buy into the Yen very soon if we do see some failure of the loony at $0.79 – $0.80. We shall see.

Now let’s look at the Nikkei stock market to see if there are hints of the Yen’s bounce foreshadowing a correction.

Japanese Nikkei stock chart suggests potential for yen bounce

The Nikkei is just above the first level of resistance at 20,000 at this time – which I’ve marked with the blue horizontal line on the chart. It could go a little higher – to about 21,000, as shown by the red horizontal line on the chart – before major resistance comes into play. Meanwhile, the Nikkei is no longer outperforming the S&P 500. Its comparative relative strength (second pane from bottom) has flat-lined recently.

If you are long the Nikkei or a Japan ETF, you might want to consider taking profits soon. History shows us that a rising Yen can be bad for the Nikkei. Technical resistance coming into play shortly might offer further restriction on upside.

Keith on BNN

Keith will be on BNN’s popular call-in show “MarketCall” next Monday July 24th for the 5:30 pm show. Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]

3 Comments

  • Hi Keith,

    Have you looked at ZMT.CA? I see more and more traders talking about XME, the american equivalent ETF. It just made it above some long-term averages and today, it’s moving big. I was hoping to buy it a bit lower, closer to what looks to me like the break-out, but 4 days later, it doesn’t look like it wants to re-test it.

    When an ETF doesn’t seem to want to re-test, what do you do? Thanks Keith!

    Matt

    Reply
    • Matt – normally this is a BNN call-in question–but you asked a strategy question too so I will address that–as far as the ETF, it looks good–although $11.50 resistance might be a problem. Some base metals have minor seasonal patterns approaching, so that might be in favor for the etf. As far as general strategy–If a security does not re-test, sometimes ya gotta jump in no matter. My inclination is that, if it were to correct, it will happen in the next 2 months. So its your call–and I cant predict what will happen–you either buy now, or you keep your fingers crossed for a seasonal correction that may drag the ETF down a bit.

      Reply
      • Thank you Keith.

        Also, regarding your post, I’m eager to see where the loonie goes from here. It’s up this morning, again, above 0.79. Reading trader posts on Twitter it seems that many expect 0.80 to be resistance, so perhaps this line of resistance is now “too obvious”, and we might overshoot above. Oil seems to have based, so, if it takes-off from here and makes a run to 54.00 again, that probably would add some fuel to the CAD/USD.

        That’s why I’m not in a hurry to buy DLR, yet.

        Nice blog post and thanks for answering my question on break-outs that don’t seem to want to re-test!

        Matt

        Reply

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