From a technical perspective the yen pairs, from AUDJPY to EURJPY and even USDJPY, look to be set up to resume the rally which kicked off in the second half of March. With a healthy yield of 4.65% AUDJPY is the clear choice to lead the complex, and is currently showing the most shallow retracement of the yen pairs since the sea change rally in mid-March. The more shallow the retracement (correction) generally the larger the rally (impulse movement) to follow is a tenet of technical analysis. AUDJPY could also give us the benefit of a monthly price pattern shift by eclipsing the 90.00 level, which is also the 66% retracement of the 2007-2008 sell-off.

USDJPY, showing a nearly 50% retracement of the March rally, looks to be poised to post a higher low, following the higher high set earlier this month . That same higher high is also the 2011 high. The significance of a pattern of higher lows and higher highs, following an extended down-move, is that it could mark an actual price reversal of the previous 4-year bear market. The timing seems apropos given the well advertised end of the U.S. Federal Reserve’s support of the U.S. Treasury 10-year note in June, and the end of quantitative easing. By stopping buying 10-year Treasuries interest rates will likely inch up, in-turn providing a slightly higher yield, which while small, would still be larger than the yield on comparable Japanese government securities, and be further magnified by the 50 to 1 leverage of foreign exchange.

For currency traders a bull market in the yen pairs could be good news indeed.

Jay Norris is the author of Mastering Trade Selection & Management, McGraw-Hill, 2011.

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