Anything in Yen

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

The turmoil in equity markets has stolen all the attention since last year. But stocks aren't the only asset class that's a mess. We're getting the same kind of mixed signals and sloppy price action from forex markets.

While stocks remain under pressure, currencies have been throwing head fakes and dishing out whipsaws all year long. The AUD/USD broke to fresh nine-month highs just last week only to reverse 200 pips by Friday’s close.

We're seeing this type of action from currencies all over the world. It’s hard to trust a breakout these days. As frustrating as these failed moves may be, there are some clean chart patterns and favorable setups shaping up right now.

One area where the trend is very clear is the Japanese yen. Just about anything priced in Yen has been rallying recently as the currency continues to collapse.

Today, we’re going to highlight the massive base in the USD/JPY.

Lets’ dive in.

Here’s the weekly chart of the USD/JPY cross:

The USD/JPY is knocking on the door of a multi-year base as price challenges the 2015 highs near 125.86.

We want to buy a breakout above those former highs. But given its near-vertical ascent in the past few weeks, and this being a logical level to digest gains, we want to be patient and allow for some corrective action first.

Nevertheless, there are plenty of reasons we like this chart and want to keep it at the top of our deck.

First and foremost, anything and everything priced in yen is catching higher. This trend is firmly in place and we want to keep riding it. 

Next, our risk is clearly defined at the 125.86 level. Above there we want to be long. Below there we want nothing to do with it. It’s that simple.

It's also worth noting the USD/JPY has been in a bullish momentum regime for the better part of the basing process. That’s constructive, as is the strong momentum heading into those former highs.

Last but not least, the risk/reward is heavily skewed in our favor. We can’t ask for much more.

That doesn’t mean it’s going to break out this week, next week, or even next month. It just means that we want to have our orders ready for if and when it does break out.

After such a powerful leg higher, we're anticipating an explosive upside resolution.

When the market hands us a sloppy mess, all we can do is embrace it and adapt. Another thing we can do is look a little harder for the clean trends.

They're always out there, and, right now, USD/JPY is one of them.

We want to exercise patience as we wait for this massive breakout to materialize.

Stay tuned!

As always, let us know what you think.

And be sure to download this week’s Currency Report!