The Yen
We see the vote of confidence that Japanese investors have given their stock market in 2012 as confirmation that the Japanese Yen has finally reversed its 5-year bull run. Further confirmation is the absence of a bid in yen on global stock market corrections - the yen is no longer a flight to quality currency, which is also a big plus for the global economy. It means the powerful Japanese investment class is finally deploying money towards overseas investments instead of bringing it home.
A bear market in yen would actually be a straightforward development for traders to take advantage of. Just sell rallies in yen futures or FXY, or buy dips in USDJPY. Supporting a weak Yen is the likelihood that the Japanese will continue to embrace the QE policies which Washington used so effectively over the last 4 years. The problem for most traders and investors here is remaining patient yet vigilant to sell a yen rally, and on which time frame chart should they look for it on? Short-term traders dominate today's markets - over 90% of financial futures volume is day-traders -- meaning price corrections do not last long. You need to be quick to buy dips or sell rallies. One simple and effective technique is watch for entry points following 50% price retracements on the 4-hour or daily charts.
A related development to a bear market in the yen is strength in the yen pairs, i.e.: AUDJPY, GBPJPY and possibly even EURJPY. Traders do not want to confuse a weak yen with a strong dollar. The U.S. Fed and Treasury will continue their no interest rate / weak dollar policy throughout 2013, meaning status quo for asset class bull markets such as U.S. blue chip stocks and carry pairs like AUDUSD and AUDJPY. 2013 will be a year of weak yen and a weak Greenback.
The threat to a weak yen and strong asset class markets would be something we have yet to experience, a Chinese slowdown, the odds of which continue to lengthen, simply because the Chinese economy did better than many analysts expected in 2012. China would also benefit from the lower commodity prices that are likely on the table because of increased oil production in North America.
If you are wondering why we have not mentioned anything about a budget "deal", aka the Fiscal Cliff or the debt ceiling in Washington it's because we take the same position that the U.S. stock market is taking. U.S. stocks are telling us that a "good enough" deal will get done, which is good enough for us. And to quote Winston Churchill: "We can always count on American's to do the right thing, after they have exhausted all the other possibilities".
To see Jay Norris highlight trade set-ups and signals in live markets go to: http://trading-u.com/eCampus/courses/live-market-analysis-trial/
Trading is a risky endeavor and not suitable for all investors.
