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Yen: The Risk Assessor

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Risk’s judge, jury and executioner.

Christopher-LemieuxSMBullion.Directory precious metals analysis 14 October, 2014
By Christopher Lemieux

Senior FX and Commodities Analyst at FX Analytics

Amid global growth worries, traders are liquidating risk. The Japanese Nikkei index (futures) is down almost 1,500 points since the September 26 high. All of the major US equity indexes are at levels not seen in six months, and the S&P 500 is worrying traders with its sudden, large declines. The US 10-year treasury is pushing lower to 2.2 percent, and the little referred to Japanese yen is marching to the highest point in a month.

The Japanese yen has received a lot of press in the foreign exchange realm over the last year due to the Bank of Japan’s quantitative easing onslaught. However, not many people tend to touch on the fact that the yen is considered a “safe haven” asset, and traders pile into the yen when they want to avoid or hedge risk.

The stronger the upward move in the yen, typically, the stronger the downside in risk assets.

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The yen, although quite volatile, will see a lot of volume during the Tokyo trading session, and the performance of the currency can give traders an idea of market sentiment leading into European and US trading.

Technically, the yen looks strong as it broke out of the strong downward channel. Price action sprung out of extreme oversold territory with market participants seeking safety and avoid risk. Upside potential is seen at both the 50- and 72-day EMA, which corresponds with price action resistance.

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Look at the correlation of yen futures with the S&P 500 (inverse) and another safe haven, gold:

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