- The Swiss franc has been all over the place against the Japanese yen during the trading session on Friday, as we continue to hang around a major support level.
- The support level, the ¥166 level, is an area that’s been important multiple times, and the fact that we can’t break down below there suggest that perhaps we are going to see a little bit of a bounce.
- However, this pair is very interesting for whole host of reasons, not the least of which would be giving us an idea as to how the carry trade may play out going forward.
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One of the things about the CHF/JPY pair is that it can give you an idea of which one of the 2 major “funding currencies” are worth shorting. Ultimately, this is a market that I think will continue to see a lot of volatility, but it’s worth noting that the Bank of Japan is pretending that they are going to tighten monetary policy. However, it’s probably worth noting that they can only do so much as far as tightening is concerned, so I look at this pair as an idea as to how to play the carry trade in general.
If we break above the ¥168 level, then it could open up a much bigger move, because it would kick off a major “double bottom” in this pair, and I think at that point in time you would probably see the Japanese yen shrink against most currencies, so when this happens, I don’t even know that I will be long of this currency pair, but I could find myself jumping in the GBP/JPY pair as an example. This is a process called “triangulation”, which gives you an idea of 2 currencies to match up against each other by examining 3 different ones.
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