Stocks turned lower for a second day in a row as euphoria from last week’s announcement of QE3 appears to be dying down. Profit-taking pressures prevailed despite better-than-expected home builders’ index results as investors instead focused on looming eurozone debt drama given the political gridlock overseas. Adding to the list of economic uncertainties was a reduced profit forecast from FedEx, which gave the bear camp even more reasons to take profits [see also How To Pick The Right ETF Every Time].
Our ETF to watch for the day is the Rydex CurrencyShares Japanese Yen Trust (FXY, B) which could gap in either direction at the opening bell following the overnight reaction to the latest Bank of Japan rate decision. Analysts are expecting for Japan’s central bank to keep rates steady at 0.1%, although the economic commentary issued after the interest rate decision itself should offer more valuable insights into the health of the recovery overseas [see also Commodities To Profit From Schiff's Currency Crisis].
This yen currency ETF has staged a slow and steady recovery since it bottomed out at $117.13 a share on March 21, 2012. Since April of this year, FXY has been climbing higher along a rising support line, and the ETF recently broke through its 200-day moving average (yellow line), which has led many to believe it is on track to resuming its longer-term uptrend. FXY is currently sitting in a sweet spot so to say seeing as how shares are floating right above support at the $124 level, which it previously bounced off on August 22, 2012 [see also 5 Tips ETF Traders Must Know].
FXY appears poised to summit resistance at the $126 level this time around from a technical perspective since it has managed to set higher-lows over the past three months, perhaps suggesting that its rising support level will welcome longer-term buyers [see also Ex-Japan ETFs In Focus].
If the Bank of Japan issues a pessimistic outlook, the yen will likely trade lower in the currency market; in terms of downside, FXY has support at $123.50 a share followed by the $122 level. On the other hand, upbeat economic commentary could welcome bullish pressures; in terms of upside, this ETF has major resistance at the $126 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
Disclosure: No positions at time of writing.