Monday brought a wakeup call for the Yen traders. The currency went on a wild run, making huge gains versus all other currencies. Its range versus the Euro was about 650 pips, the largest since March of 2011. Other crosses registered proportionate swings, all to the downside. This is especially interesting because these moves came seemingly out of nowhere, without a major fundamental development targeting the JPY. Some claim it was a “flight to safety” on concerns over results the Italian election. These are probably the same people who in the past few weeks declared the Yen a dead safe haven.
I have been waiting for this event for about a month, as frequently mentioned on these pages. Still, the ferocity of this selloff surprised even me, who was supposedly “ready” for it. I only wish. In my mind, it should have taken the EUR-JPY about a week to fall from 125 to 118 under the best of circumstances, not several hours. The same applies to all the other crosses. Nonetheless, I had sell orders in some of these instruments, like the AUD-JPY, discussed it the last two posts and many times before.
As explained earlier, I was tracking lows on the 15 M chart of the AUD-JPY with a sell order. It was activated at 96.45 and the price quickly fell to 95.00. This situation was expected, more or less, but at a much slower pace. At this point, I placed a new sell order at 94.80, giving it few days, not imagining there was more downside during this session.
The selloff continued late into the New York session, bringing another 100 pips. This was the really surprising part. I have seen situations like this one before, but they normally happen near the end of an established bear market, not so close to the top of a major rally. Something is definitely different now, although I do not have any complaints.
The real action took place in the EUR-JPY, where the selloff assumed massive proportions. In two quick trades, I netted about 320 pips and after that placed one more, expecting to sit on it for at least 1-2 days.
Much to my amazement, when I looked at the chart about an hour later, the trade was in the black another 200 pips. I closed it for 192 pips and walked away. As far as I am concerned, charts of the Yen crosses are distorted now and we should wait for the proverbial dust to settle before developing new opinion about what do next. Besides, after the best trading day in couple of years, it is a good idea to step back, clear the head and not ruin this experience with questionable, emotional trades.
Mike K.