(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Reuters reported yesterday that Japan is getting ready to intervene to weaken its currency. Japanese authorities are getting anxious because the yen is reaching the multi-decade highs versus the U.S. dollar last set in the wake of the Japan earthquake and tsunami in March. Those levels triggered a G7 coordinated intervention that substantially weakened the yen (see the New York Federal Reserve’s synopsis in “The Great Foreign Exchange Intervention of 2011“).
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Still, it seems Japan’s intervention is a matter of when not if. So it is easy enough to short yen and wait for the profits to roll in, right? Perhaps. The current trend is not Japan’s trend, and it is not the friend of anyone playing an intervention.
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Source: dailyfx.com charts
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March’s G7 coordinated intervention not only quickly reversed an historic one-day gain for the yen, but also the momentum continued for almost a month before the primary trend reasserted itself.
Source: dailyfx.com charts
So it seems there are at least two important elements to playing a potential yen intervention: 1) size the position to withstand a final surge to fresh highs for the yen (even better to have cash in reserve to sell into that surge); and 2) take profits quickly.
This time around, I have added a third idea: I am calling it “distributed positioning.”…
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Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: net long the yen