There has been quite a bit of banter recently about a "currency war" developing given the Japanese Yen has fallen dramatically against the USD - roughly -15% in the past 11-weeks. This is a rather major move for a currency; and it is such that it is providing cover for Japanese exporters against those in Europe and the US as well as other emerging markets. Remember, the US continues to print money via QE-4, while Europe has simply said it "has what it takes, and believe us - it is enough. Japan on the other hand, simply said they would raise their inflation target from 1.0% to 2.0%, and employ an open-ended asset purchase plan...beginning in January 2014. One must wonder aloud why the Japanese aren't doing so now; and whether or not they are following the Europeans by jawboning the markets. In light of this, it would be wise to consider the technical condition of the US dollar as the "race to the bottom" looks to get much more interesting in the weeks and months ahead.
Quite simply, the US dollar is forming what is clearly a bearish "head & shoulders" topping pattern, and is on the verge of breaking down below neckline support. This would be a major violation, and thus would target the waterfall lows formed back in May-2011. And with volatility growing in the currency markets, then this decline could be just as quick over a couple of months. That said, one would ostensibly wonder which currency or currencies one would buy against the US dollar to take advantage of just such a move. In our opinion, the Euro and the Swiss Franc - with the Swissy being our favorite currency given her outstanding fiscal situation.
Lastly, we should point out that the US dollar decline to the May-2011 low was accompanied by increased volatility in the stock market - and a majority of this volatility resulting in a sideways trading pattern...ultimately resulting in a sharp decline into September 2011. So, caution is advised; especially given the recent euphoria.
Good luck and good trading,
Richard
