Friday, January 31, 2014

Time to sell gold again? | Yen strength as a ‘safe haven’ move

One of the more reliable indicators of price direction in Technical Analysis is the weekly engulfing candle, about which we have written here before. The chart above shows this in action over the last year or so in gold futures. The circled bars show where a weekly engulfing candle did, indeed, predict the direction of price for at least the following week, often for longer.

Today is the last day of the current week. Unless there is a pretty sharp rise in the price of gold today, this week’s bar will also be an engulfing one, and it will be coloured red.

Yen strength as a ‘safe haven’ move

Yesterday we nominated the Yen as one of the currencies that might be in line for a fall against the US dollar. This would mean that the USDJPY pair would rise in value and, sure enough, this proved to be the case during the London and New York sessions yesterday. Last night GMT, during the Tokyo trading day, which opens at midnight GMT, the Yen took on new life and the USDJPY pair fell. Quite a bit.

The cause of this, apparently, was a precipitate decline in the Nikkei index of Japanese stocks. This caused a flight to the ‘safety’ of the Yen, which is regarded as a strong safe haven currency and if it has been regarded as such since the start of the correction in US and European stock indices, it is hardly surprising that it should be so treated when the Nikkei has its correction moments. What is remarkable is the apparent belief on the part of Japanese investors that their stock index might be exempt from this correction, which is taking place all over the world.

At the open in Frankfurt and London this morning, which take place at 7:00 GMT and 8:00 GMT respectively, there were signs, albeit tentative enough, that some traders saw the USDJPY pair as being at a bargain level, and were buying.

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