From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The Japanese yen continues to slide.
In early April, we highlighted the multi-year base in the USD/JPY cross. We were anticipating a significant breakout based on the broad weakness in the yen.
Even gold, one of the worst performing assets, looked strong denominated in yen.
Not long after the post, we got the breakout we expected. And, two months later, the USD/JPY is kicking off its next leg higher, printing fresh 20-year highs.
Let's take it a step further and outline some trade setups in other currencies denominated in yen.
Remember, everything and anything seems to work priced in yen these days.
First, a quick revisit of the USD/JPY chart we shared in April. Here’s the updated version:
After retesting its recent breakout level near 126, the USD/JPY pair has resumed its upward trajectory to fresh multi-decade highs.
Retests of significant levels are commonplace, especially after swift breakouts like this one.
Seeing this cross find its footing and resume higher while momentum remained overbought shows that buyers are in firm control of this trend.
Here’s a zoomed out chart of the USD/JPY pair:
From the looks of the weekly chart above, USD/JPY is in the early innings of a sustained uptrend as it completes a multi-decade base.
As long as we’re above 126 the breakout is valid and the bias is higher.
Sticking with the mantra that everything and anything is a good bet against the yen, we have the EUR/JPY cross:
The euro is constructing a decade-long base versus the yen as it challenges a key retracement level around 141.
As of this writing, the EUR/JPY has taken out that key level, gaining more than 75 pips into the afternoon session.
As long as it’s above that level we want to take a shot at the long side of the EUR/JPY cross with an initial target at the 2014 highs around 149.75 and a longer-term objective near 170.
We can only be long if it’s above 141.
The British pound is another major currency carving out a large basing formation against the yen. Here’s the GBP/JPY pair:
Like the euro, the pound is trading near a critical retracement level. We want to be long on a decisive breakout above the pivot highs.
We’re buying strength above 168 with a primary objective around 199 and a secondary target around 250.
Last but not least, we have the Canadian dollar. Here’s the CAD/JPY cross:
We’re looking at another monster base with this one.
Yesterday, it broke above a critical level around 104, printing new seven-year highs. We like it long if and only if it’s above that level, targeting 125.50.
Some of these targets might seem ridiculous. But price could reach these upside objectives far faster than most suspect.
These big bases represent significant structural changes that took more than a decade to build. Now that they are resolving higher, some strong rallies should ensue.
Two things are clear. First, the yen has a rough road ahead. Next, we want to buy assets denominated in yen.
For now, we have some great options in the currency market. We’ll keep you posted as more opportunities arise.
