May 1, 2023

We're Short Yen

Frank Cabibi

Last week, some extremely dovish news came out from the Bank of Japan. This resulted a plummeting yen, and an increasingly bearish outlook on the already-beaten down currency. Here is why we are short Japanese yen and what setups we see going into this week:

EdgeFinder Analysis

Swiss-yen has been a longer term strong buy on the EdgeFinder. The score has been at +7 for a while now, and will likely continue for some time. This pair is one of the few assets that have a strong fundamental and technical bias towards CHF. In other words, it's a very one-sided score with the exception of COT and GDP.

Retail is strongly bearish, trying to catch a reversal. Smart money isn't too keen on either currency as of now. Regardless, the pair continues to push higher due to how bearish the yen is right now. Aside from COT, the fundamentals and technicals are pointing towards CHF.

The EdgeFinder is spitting out more strong biases against the Yen as UJ is now a +6. Similar outlook for UJ, the pair looks bullish right now. If price can close above that falling trend line, it would look like there is some long potential.

The BOJ announced that they will wait over a year to consider tightening monetary policy. Meanwhile, JPY's CPI came out higher than expected. We are looking at a very weak yen. On the 1D timeframe, UJ's price looks to have a lot of bullish momentum. The next test could potentially be around 137.9 where there is a previous high.

EJ is back to a strong buy on the EdgeFinder after a relatively dovish stance on the Japanese economy. Yen is looking much weaker on the day as a result, and price broke higher above a significant resistance line. A close above this level would be a good confirmation of another run to the upside.

According to a 10 year average on seasonality, EJ will have the most bearish month of the year. However, the 5 year average says something different and actually reads slight bullishness overall. Although historical trends are important, they are also subject to change, hence the 5 and 10 year average difference. What's also very reliable to look at is where smart money is going. Recent activity shows institutions further retreating from the yen while buying up the euro.

Retail Spotlight

The crowd is mixed between euro and the aussie. The strongest biases to the long side are NZDCHF, AUDNZD, and CADCHF. We can tell that retail is uncertain while also heavily bearish CADJPY, GBPJPY, AUDJPY and CHFJPY.

Smart Money Spotlight

Here is a better visual on institutional behavior. What we can see is a continuation of euro longs, declining bullishness on metals and oil, and an extremely bearish reading on yen. The weekly change in activity shows a decrease in long contracts with a large increase in shorts for JPY.

Fundamental Spotlight

Because of the recent rise in core CPI and the lack of monetary tightening, USD and EUR look fundamentally stronger. The chart at the bottom is tracking inflation reports from January of this year. What we can see is a downtrend for both the euro and dollar, but the yen's decrease in inflation is halted.

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