Japanese Yen and Volatility Sit At the Cusp Of Renewed Risk Aversion

(This is an excerpt from an article I originally published on Seeking Alpha on June 22, 2012. Click here to read the entire piece.)

Thursday was a good day for the dollar index (UUP) as it experienced one of its strongest one-day rallies of the year. {snip}


The dollar index bounces back
The dollar index bounces back

While the dollar’s rally was indeed impressive, I think the Japanese yen is an even more interesting story. The yen sits at the cusp of renewed risk aversion. The traditional safe haven of paper currencies sits at one of those critical junctures that likely separates sustained weakness from an important reversal…{snip}…a U.S. dollar rally from current levels must certainly confirm risk aversion.

The following charts show that the U.S. dollar is breaking out against the yen (FXY) with a run over the 50DMA, but other major currencies are fading neatly from resistance against the yen.


The U.S. dollar breaks out against the Japanese yen (USD/JPY)
The U.S. dollar breaks out against the Japanese yen (USD/JPY)


The pound gains again on the yen (GBP/JPY) but fades away from 50DMA resistance
The pound gains again on the yen (GBP/JPY) but fades away from 50DMA resistance


The euro fades away from the 50DMA against the Japanese yen (EUR/JPY) for the second day in a row
The euro fades away from the 50DMA against the Japanese yen (EUR/JPY) for the second day in a row


The Australian dollar fades from the 200DMA versus the Japanese yen for the second day in a row (AUD/JPY)
The Australian dollar fades from the 200DMA versus the Japanese yen for the second day in a row (AUD/JPY)

For now, I am maintaining my bullish stance on the Japanese yen, and I increased that position today. A failure of this position will have me switch to an emphasis on a bullish dollar position. {snip}

The iShares Barclays 20+ Year Treasury Bond (TLT) continued its bounce…{snip}


TLT continues to churn in a tight range but looks ready to resume its rally
TLT continues to churn in a tight range but looks ready to resume its rally

Finally, the volatility index, the VIX, surged an amazing 16%…{snip}


VIX rallies back toward the critical 21 level
VIX rallies back toward the critical 21 level

{snip}


VXX attempts a third bounce from the bottom
VXX attempts a third bounce from the bottom

Source for charts: FreeStockCharts.com

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on June 22, 2012. Click here to read the entire piece.)

Full disclosure: net long Japanese yen, net short U.S. dollar, net long VXX

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