When the Japanese decided to leave their interest rates unchanged at near 0% several days ago, most pundits considered it a bullish decision for global capital markets. We are not exactly sure what it represents for equities (which continue to tease and annoy in their chop), but it does appear to have sent USD/JPY to the verge of an important upside breakout pictured below.

Chart produced using Advanced GET End-of-Day

As you can see, we have had a bit of fun marking up this chart with various Fibonacci retracements (from the 1998 high to the 2000 low, from the 1999 high to the 2000 low, from the 2000 low up to 61.8% of the 1999-2000 decline). We have also added in both the 100-day and 200-day day moving averages.

What suddenly becomes strikingly clear once our penmanship is finished, is that there are two obvious target levels to the upside: clusters of both Fibonacci retracements and moving average resistance. These levels are approximately 113 and then 119. We expect to see both -- 113 in short order and 119 after some work at the first level.

U.S. dollar longs here with stops set toward 104.50 continues to be a trade that is a good risk-reward situation.

Fundamentally, with a G8 meeting forthcoming in the next few days, might we finally see some admission (let that read, headline) that since 0% interest rates haven't done the trick, undue yen strength just has to go?

Japanese investors would effectively be given the choice: stay domestically invested and play the JGB carry game (while it lasts - since overtly pushing the dollar higher might with time be the first real dent in JGB's armour), or try to get even healthier by shipping a bit of money abroad, with the tacit guarantee the dollar is not going to go down. Maybe two choices are better than one as the Japanese central bankers continue to grope towards a great reflate policy.

A positive eye on gold denominated in yen might be appropriate as well, as not every marginal dollar flowing out of Japan will be particularly keen to go straight into U.S. stocks at outrageous P/E levels.

Please support Sand Spring Advisors and purchase one of our more in-depth articles below.

Ordering by Credit Card:
Our shopping cart is designed for both physical and subscription products, so do not be confused too much when it asks you for a shipping address. A correct address is important only for credit card authorization purposes. Your e-mail information is the most important piece of information to us for proper delivery of your article(s).

Disclosure Statement

Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.