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The latest move from the yen comes as no surprise as we wrote about yen shorts building with $JPY short positions are at their highest since 2014. The herd has been caught again, part of it is the U.S. traders obsession with the dollar index rather than the currency itself. It is critical to think ahead in forex as we reminded a fortnight ago.

From Yen Shorts at 3 Year Highs as $USDJPY Breaks 111

All summer speculators have been selling yen, using it to fund the carry against the $AUDUSD via $AUDJPY and the $USDJPY. The trade has worked against the Aussie, the $USDJPY not so much. The US economy has not delivered thus far and this week we get the FOMC meeting which is expected to keep rates the same and perhaps add o the dovish tone from Yellen lately.

Since then we have seen the $EURUSD yen soar to highs over 1.1800 fueled by $EURJPY buys. There in lies part of the problem, the DX obscured the risk in the yen and as bottom pickers bought $USDJPY.

Image: Shorting the Yen Can be Hazardous

Last bounce was off the Fibonacci retracement level from the recent high and June lows, now we have powered u and broken them. Bulls argue that this is because of Trump and North Korea. Think about that what country is right next to North Korea? Look at the AUD for that argument, that tells us the fundamental reasons are elsewhere, market size, repatriation has largely occurred for example. When not sure watch the flows and the charts, and by patient.

We did work around the Fibonacci retracement level from the recent high and June lows. Here we show the Gann box and the Ichimoku to reinforce the price action accessibility.

From where we based and fueled the corrective wave for this impulse: 

Nothing has changed really we wrote that "JPY shorts punted on the Fed or the GDP report the day after being positive for the dollar. In the past week we have seen a more dovish Yellen and soft U.S. numbers. Not to mention the difficulties the Trump Presidency has had over the past few weeks. A dovish Fed and those large shorts could be troublesome for the $USDJPY." This situation has clearly been magnified.

The US Dollar Index Daily chart via @heidstertrades gives an indication of the difference between the Yen, Euro and other components individually. Note the bounce here versus the Yen and the extension prior. 

Bigger picture? Here are the levels on a weekly basis to give perspective.

Here's that same weekly:

Trade Smart!

KnovaWave @knovawave

 

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