The Yen is regarded as a safe haven by the Japanese, who tend to flock into it when they see trouble abroad. This happened in last December/early January when there was a wave of such buying while world stock markets crumbled. Stocks mostly made their lows just after Christmas but the dominos had already started falling and Yen buying pushed most other currencies down sharply in the next few days, making extensions at a weekly and daily scale, as seen here:
That move was too quick to catch for those not based in the far-Eastern time zone, as the low and rebound had already happened before Europe woke up. Nonetheless we have been waiting for the second act of the play and this may now be it – there was a daily-scale bottom extension in the Euro-yen a little over a week ago which has stemmed the small decline that was happening then. There is a good chance that there will now be an up-leg in the Euro against the Yen, and by implication in other Yen currency pairs too (see below).
Meanwhile the £ has been suffering again as the Brexit situation grinds towards some kind of crisis end-point. This has had the usual effect of supporting UK-listed stocks with international earnings (mainly those in the FTSE 100) but here we are concerned with the currency itself. There are some signs that it has become too cheap, mainly extension signals against the Swiss Franc. This is partly due to Swiss Franc strength as it has been moving up lately – presumably because of worry about the EU elections in two days time, but the £ has also fallen against other currencies:
This means that we should not become too bearish of the £ just here and a rebound is possible. It is hard to recommend buying it generally yet but there is one way to do so with slightly minimised risk – buy it against the Yen, in line with the prospects for that currency to fall (see above). Indeed there has also been an extension of the £ against the Yen, where the signals have a good track record:
Elsewhere, the explosive up-move in Corn and Wheat has just produced the first top extension, in Corn:
This rally has been confined to Corn and Wheat, but it has ‘spilled over’ into the soya complex a bit. It hasn’t had any effect on Cotton by the way, which is still stuck more or less at the lows. The violent nature of the Corn and wheat rally means that it has the characteristics of a ‘squeeze’ and indeed it has been much mentioned by other commentators that there has been an unusually high open interest which is assumed to be a concentration of speculative short positions. If that is true, they are now being squeezed out BUT my grain contacts tell me that there is still a lot of 2019 crop to be hedged by growers and so we should expect that the rally will run into some selling pressure soon. Take profits on long positions, at least in part. We remain bullish but this has been too much, too soon. Re-enter on a dip.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
