Sand Spring Advisors LLC

Currency Update

January 18, 2003

by, Barclay T. Leib

Back on December 5, 2002, we espoused some concern that the price action in USD/JPY was about to reach an intermediate dollar high toward 125.71. It did so, and has since retreated rather badly to as low as 117.44.

Fundamentally, devaluing the yen and forcing money out of the JGB market and into other global assets would seem to us a logical macro path for the Bank of Japan and Japanese Ministry of Finance to follow. And yet, the price action of both the JGB market and the USD/JPY market now suggest something very different. JGBs continue to vault skyward, and the yen is now trading in a very sloppy fashion in the 117-122 range.

Is the support line in USD/JPY pictured on the right side below destined to fail in a similar fashion as it did in another "no-name" pattern match chart example on the left? We have put numbers on each chart (not related to any Elliott wave sequence) just to show potential relative positioning.


Chart constructed using Advanced GET End-0f-Day

After one more potential small bounce, maybe as high as 121.50 (a good level to target selling dollars with stops set above 123), we fear the worst. Yen at 98 is the last thing the world needs, but it does appear possible, if not probable, at this stage.

Meanwhile the euro is now well above our previously espoused 1.04 upside target. But we would not chase this move by getting long euros again. With more resistance near 1.0726 and then longer term resistance at 1.1135, being long the euro at this stage is not as good a risk-reward situation as being long Canadian dollars vs. the U.S. dollar. We previously commented on the Canadian dollar back on December 09, 2002, and continue to have the same feelings about its chart pattern at this time.

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