If you’ve paid attention to the currency markets over the last couple of months, I am sure you have noticed the huge move in the Japanese Yen to the downside against the U.S. Dollar. This is the one currency the Dollar has shown consistent strength against, as Japan, with its new more liberal prime minister, is providing more stimulus to its long languishing economy. In essence, Japan is now leading the race to the bottom among the fiat currencies, while the Euro is fast becoming the strongest currency.
After trading within a tight range from May to October, and going through several false breakouts, the Yen broke down for good in mid-October. A brief bounce in late October provided another opportunity to go short, and then a brief consolidation period into early December provided another opportunity. Overall, the decline in the Yen since its initial breakout has resulted in gains of over $20,000 per futures contract, which is a substantial move. However, the beauty of this particular trend has been the other opportunities it provided to get short along the way. I can pretty much guarantee that most trend followers among the CTA crowd are fully loaded up in this short position. As a result, you can probably expect a big short covering rally once this trend ends. No matter when that occurs, this is a move that is providing many futures traders a nice start to the new year. Have a look at the chart below.