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Japanese Yen ETF Is Crashing Following Weak Trade Data

April 22nd, 2014

japanese GDP growthDavid Becker: Currency Shares Japanese Yen Trust (NYSEARCA:FXY) is declining sharply following weaker than expected trade data released by the government on Monday.  The increase in Japan’s trade deficit coincides with a momentum sell signal that will keep the currency on the defensive. This ETF is the most liquid of the Japanese yen ETFs, and follows the movements of the exchange rate between the Japanese Yen versus the US dollar.

Japan reported a record large trade deficit in March of nearly 1.45 trillion yen, which was about 40% larger than economists had expected.  Many consider a trade deficit to be negative for an economy as well as a currency as a nation that consistently runs a deficit is borrowing from abroad and selling off domestic asset to finance purchases of goods and services.  For example, Japan would sell yen to purchase items outside of Japan.

The trade deficit reflects a slump in exports, which only climbed 1.8% year over year.  Imports were up more than expected. The 18.1% increase from a year ago was twice the rise in February and above the 16.2% consensus forecast by economists.

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On April 24, Japan is scheduled to report its March inflation figures.  A lower than expected Consumer Price Index could force the Bank of Japan to generate additional monetary stimulus to avoid deflation.

The most interesting readings will focus on the Tokyo’s Consumer Price Index which will include the new sales tax increase.  The headline rate is expected to surge to 3.1% from 1.3%.  Since economists expect a relatively high inflation figure, there is the risk of a disappointing rise in the CPI which could further erode the value of the yen.

FXY Momentum

Momentum on FXY has turned negative as the MACD (moving average convergence divergence) index generated a sell signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.  The MACD index moved from positive to negative territory which confirms the MACD crossover sell signal.

The 5-day moving average is poised to cross below the 20-day moving average.  When this occurs, a short term down trend is generally considered in place.

japanese-yen-stock-chart

FXY Support and Resistance

The next level of target support for the FXY is seen near an upward sloping trend line that connects the low made in December of 2013 and the low made in early April.  The slope of this trend line comes in near $94 per share.

Resistance is seen near a downward sloping trend line that connects the high in February to the highs in March in creates a slope that comes in near $94.25.

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