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Wednesday, 30 November 2011 17:09

There are many opinions about such large scale forecasts. One is that in such a dynamic society, large forecasts are academic. Second view is about the real viability of Elliott as a predictive tool. We all know how poor Elliott is in timing, so even if the forecast turns right, but years off the time target, it’s a poor forecast. And third opinion is about what situations have to happen for long term forecasts like this to happen.

We agree that long term forecasts are academic and need more work than Elliott counting. Such multiyear forecasts need to be backed with time cycles and Intermarket reasons. After such a thorough case is made one can objectively judge a multiyear forecast on a global currency.

Now here we have illustrated a previous anticipated multiyear triangle from 2007, which we expected to push Yen from 120 to 80. Now that prices reached sub 80, we have looked at potential reversals. A few reasons for a reversal, 1) The leg down from the triangle is proportionate to the overall structure and indeed could be a completing final leg of multi decade strengthening on Yen vs. USD. 2) The non confirming momentum of 30 years and oversold situation suggests a potential reversal. 3) Multiyear and multi month Jiseki multiyear and multi month is negative for FXY (YEN ETF) suggesting weakness.

The quality of the bounce will tell us whether we are indeed in a secular weakness on Yen or we have more strengthening left. A valued reader and hedge fund manager on forex had this to say regarding my comments on Yen. Yen the $150 really requires an implosion in Japan. This leads us to the ultimate question of the 30 year equity bear market in Japan will this create the final low for the Japanese market? The basic premise that you work with today in the market is volatility not value and the right focus is making the cost of time cheaper in either direction simultaneously?

This is what I had to say. 1) If 120 to 80 happened in 4 years, a multiyear move back should also be easier. 2) I think the Gold vs. Yen is the last stand before Gold becomes the real currency. So if traders feel they have missed on Gold, Short Yen offers a chance to indirectly ride Gold performance. 3) I think currency and equity correlations are overplayed, a weaker Yen could make Japanese companies more competitive and hence a state better equipped to handle debt or any implosion. 4) The reconstruction after Miyagi earthquake itself creates more economically than it destroyed.

www.economist.com/node/21538745?fsrc=scn/fb/wl/ar/whoselostdecade

But still in the end, it still comes back to timing the move (judging the pace of volatility) for which we rely on Jiseki.

Mukul Pal, CMT, Orpheus Capitals. Global Alternative Research