Trade Rec to Sell Dollar vs JPY Update

On Nov 30,we recommended selling dollar-yen with a tight stop just above JPY84.40. Initially, we looked for JPY82.80 and then possibly JPY81.80. The dollar fell to its lowest level since Nov 12th today near JPY82.35, but has bounced back strongly. Those who followed us may want to take profits near here.

The major driver of the trade has weakened. It was that US rates had fallen relative to Japanese rates. US rates are spiking higher and this may give the dollar better support. In addition, we identified the heightened volatility of the capital markets supportive of the yen. This force also seems to have weakened as the market focuses on 1) risk of extending QE in US and Japan and 2) new bond purchases by the ECB and more generous provisions of liquidity. Near-term risk on the dollar extends to JPY83.30. JPY84.40 remains an important barrier on the upside.