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.
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.
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 firstname.lastname@example.org