Stocks oscillated near the flat line all of Wednesday morning in anticipation of FOMC minutes, which ended up being very anti-climatic compared to previous releases which are infamous for sparking volatile trading on Wall Street. Overall, major equity indexes ended in shallow green territory after Fed Chairman Bernanke reassured investors by noting that “There will not be an automatic increase in interest rate when unemployment hits 6.5%” [see The Best Dividend ETF For Every Investment Objective].
Our ETF to watch for today is the CurrencyShares Japanese Yen Trust (FXY, C+) as it may experience volatile trading following the reaction to the overnight Bank of Japan interest rate decision. While analysts are expecting for the BoJ to hold rates unchanged at 0%, any commentary after the rate decision itself may offer insights as to how monetary policy could potentially change.
Consider FXY’s one-year daily performance chart below. The yen has slid lower without much resistance ever since the BoJ enacted monetary easing, and while this policy is likely to persist, the currency could be in for a short-term reversal considering how devalued it has become relative to the U.S. greenback. From a technical perspective, FXY is showing signs of a potential bottom; notice how this ETF has posted a higher-low over the past few days since sinking to $94.38 a share in late May of this year. Furthermore, the above-average buying volumes seen on 6/6 could be a sign that bigger players are bullishly positioning themselves in anticipation of a rebound [see The Ultimate Guide To Currency ETF Trading].
Investors looking to jumping in long should be careful given the longer-term downtrend at hand; we advise setting a tight stop-loss near the recent lows in case another round of selling hits this currency ETF [see 3 ETF Trading Tips You Are Missing].
If the latest commentary from the Bank of Japan hints at further easing, then the yen could face bearish headwinds on the day; in terms of downside, FXY has major support at $95 a share. On the other hand, any hints that suggest a stronger currency should bode well for FXY; in terms of upside, this ETF will likely face profit taking pressures as it nears upcoming resistance around the $100 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing.