Of Currencies & Sawtooth Trading
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
The Yen has strengthened; the Euro continues to weaken and on balance the US dollar is quietly better against the majority of the currencies we mark each day. The Yen has strengthened following remarks from one of Mr. Abe’s closest economic advisors, Mr. Koichi Hamada, who said that at 120 Yen/dollar the nation’s currency is very weak.
Mr. Hamada is a Professor at Yale and does not serve in an official capacity within the Japanese economy, but as one of the elder statesmen of the LDP and as a long standing counselor to the Prime Minister his comments do carry some weight. However, in this instance we think far too much weight is being given to Mr. Hamada’s comments and we note that the clearly defined trend of the Yen/dollar is for the former to weaken, not strengthen.
Since mid-January, the Yen has strengthened several times, but each time the dollar has weakened it has fallen to progressively higher, not lower, levels. For example, back in mid- January the dollar’s low relative to the Yen was 116 Yen/dollar; then the next interim low for the US dollar was in early February when it traded down to 116.90. The next interim dollar low was mid-late February when it traded to 118.25. Then in very late March, having traded all the way to 121.90 it fell to 118.50. The next dollar low, only a week or two later was 118.75 and this morning amidst interesting intra-day weakness predicated upon Mr. Hamada’s comments it’s fallen to 119.65.
There is a clear pattern here: each low is higher for the dollar and each high is higher. Mr. Hamada’s comments have served only to give those who are bullish of the dollar, or bearish of the Yen, an opportunity either to establish new positions and/or to add to old ones.