USD/JPY: When RSI Turns, Take Profit On Shorts; EUR/USD: Stay Long - SocGen
The way USD/JPY trades -spiking lower before being dragged back up by the BOJ – means that momentum indicators like relative Strength Indicators (RSI’s) are useful tools to get a sense of when the move is going too far, or when momentum is picking up/fading.
The first chart shows the 9-day RSI. When the RSI peaked and started falling at the start of this month was a very good signal to buy the yen, and on the converse, the RSI is now approaching levels last seen as we spiked down to USD/JPY 116 in January. This move in the yen may now be going dangerously quickly and when momentum slows (which is when RSIs wills top falling), it will be time to take profits on yen longs, at least temporarily.
...That the ECB will deliver further accommodation next month seems pretty much certain unless a lot changes between now and then. Whether it works isn’t quite as certain. In the meantime, it’s worth noting a 9-day RSI at 76, actually a little higher than it was in October, though below the spike in August (when EUR/USD broke above 1.17).
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