Technical Rally In The Safe Haven Trio (Yen, Treasuries,
Gold) Is Nearing Its End
Jan.18.17 | About: SPDR Gold (GLD)
Summary
• The U.S. dollar has pulled back after the explosive Trump rally ran out of steam,
leading to sharp relief rallies in yen, gold and US Treasuries to start 2017.
• Both the yen and Treasury Bond yield are following a similar historical pattern which
is signaling an end to the recent rally in the next few weeks.
• Gold remains highly correlated to yen since the beginning of 2015 and will most
likely continue to follow the yen’s footsteps.
• In the medium term, yen, gold and U.S. Treasuries likely remain on the backfoot as
fundamentals point to stronger U.S. dollar and higher interest rates.
Towards the end of 2016, we had suggested a temporary pause to U.S. dollar's
(NYSEARCA:UUP) explosive rally since election, based on how closely the U.S. dollar
Index (DXY) has been following the technical chart patterns from 1999-2000. To recall,
Party Like It's 1999 for the U.S. Dollar
So far, the analog continues to play out nicely to kick start 2017, with the DXY selling off
pretty much right from the get-go, down 2.5% since peaking on January 3rd. The euro
(NYSEARCA:FXE) rallied 1.5% while the yen (NYSEARCA:FXY) outperformed with a 3%
gain vs. the U.S. dollar year-to-date. That being said, we believe that the retracement in
USD/JPY is nearing its end, as we observed that the strong move off the lows in
September last year and the subsequent retracement closely resemble that from the same
period in 2014-2015.
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(Source: WingCapital Investments)
As illustrated in December's piece, we believe that the up and down swings in the yen
have been largely driven by large speculators based on how price has moved in tandem
with the net exposure in large specs. Furthermore, it appears to be a recurring end-of-year
theme since 2013, with the net short exposure spiking into year-end and leading to a
substantial drop in the yen, before the short positions are squared up to start the year:
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