Yen’s Short Squeeze

Japanese yen has been one of the worst performing assets. I would like to remind my readers that the yen is one of the most important currencies in the world. This isn’t your 3rd-tier frontier market currency, which goes up or down by double digits on any given year. The fact that yen has lost more than a third of its value over the last three years is remarkable, but what is even more shocking is that it has been almost a straight line bet.At the same time through this period, US and Japanese stocks have been rising in a straight line, without any major corrections.

Yen has trapped all the Dollar bulls with a reversal

USD/JPY

Source: Bar Chart

However, it all seems to be changing very quickly. Globally, stocks are now entering a correction period, while the Yen is starting to rally strongly once more. The recent break out in the USD/JPY during middle of May reached exhaustion point with a huge amount of dollar bulls pilling in. Every Japanese housewife was shorting its own currency.

A classic text-book bull trap has now been completed, with a mega reversal occurring today below 122 on the cross pair. Usually, when a break in one direction becomes a fake out, a more violent move occurs in the opposite direction. If the stock market turmoil continues without any major interventions from central banks, Yen could rally for awhile!

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