When ?Safe Haven? Assets Are Really Not!
Today’s Spotlight Market
Both large and small speculators are currently net-short Japanese Yen futures according to the Commitment of Traders report. For the reporting period ending December 30, the combined non-commercial and non-reportable net short position totaled 136,402 contracts. It appears it may be more of short-covering buying than new long positions that has propelled the recent rally in the Yen.
Fundamentals
The recent slide in oil prices and concerns about early elections in Greece are two of the reasons some analysts are attributing for the recent rally in the Japanese Yen, U.S. Treasuries and Gold on the guise that investors are moving into so called ?safe haven? assets. Well, one has to wonder how safe holding Gold was since mid-2011 and while the risk of a U.S. default on its government debt is microscopic, 10-year Note yields under 2% sure seems to leave little long-term upside potential. However, the one that really should surprise investors is the Japanese Yen as a ?safe-haven? investment. First off, the Japanese economy has been in an economic funk for nearly 30 years now and despite massive buying of Japanese Government Debt by the Bank of Japan (BOJ), the economy barely grew at a snail?s pace. So while the risk of deflation looms, Japanese legislatures go and raise the nation?s consumption tax! Not a good way to get ones citizens to spend is it? The nation?s debt to GDP ratio is approaching 240%! Although to be fair, the amount actually held by the public is probably closer to 130% of GDP. This massive amount of debt forces nearly 1/6 of tax revenue to pay for the interest on the debt, which takes away funds needed for other government programs. With Japanese 10-year Bond yields currently near 0.28% what would the rate of tax revenues have to be to meet interest rates should yields rise even to 1% or nearly 4 times the current yield? With a demographic profile that has over 40% of the population age 50 or older; one has to wonder where the economic gains will come from to help support the nation?s currency in the future.
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Japanese Yen futures, we notice prices beginning to form a consolidation pattern following the steep selloff that sent the value of the Yen vs. the Dollar lower by approximately 1600 pips. Prices remain well below both the 20 and 200-week moving averages which is keeping Yen bears in charge. We do note that the 14-week RSI has recovered from it?s recent lows, but remain in oversold territory with a current reading of 27.87. The recent low at 0.8207 remains key support with resistance found at the chart ?gap? at 0.8893.?
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