Nobody may have any interest in shorting the U.S. stock market right now. Yet futures traders are growing increasingly excited about the prospect of shorting certain currencies . In particular, bets that the Japanese yen will fall against the greenback are at their highest levels since the summer of 2007. Granted, a contrarian might think that a high degree of short interest is an indication that Japan’s currency could actually strengthen against the dollar . However, trend analysis suggests otherwise.
The price of the CurrencyShares Japanese Yen Trust (FXY) is below both its 50-day and 200-day moving averages. For most trend-followers, this suggests that yen depreciation may have further to go. From my vantage point, though, I would need to see the yen break through the 52-week lows set back in May. If that turned out to be the case, I might anticipate capital appreciation from WisdomTree Japan Hedged Equity (DXJ). The exchange-traded tracker has had a difficult time recapturing its springtime highs due to the fact that the yen has not quite capitulated.