I think it’s fair to call yesterday’s selloff in U.S. equities a crash or at least a mini-crash. At its low on Monday the Dow Jones Industrial Average was down more than 1,600 points or just over 5%.
It’s no coincidence that the Japanese yen strengthened throughout the session. While the currency’s safe haven status has been questionable of late, yesterday’s plunge in the USDJPY while the Euro and pound both dropped settled the debate.
The yen remains one of my favorite currencies when risk assets sell off. It should be no surprise then that I like the idea of shorting a pair like the GBPJPY.
From a technical standpoint, the pair is retesting a significant trend line from August of last year. I’ve had my eye on this level for several weeks, but buyers never capitulated.
Until yesterday. Looking at the current price action, dare I say that the GBPJPY closed below trend line support? It certainly seems plausible from where I’m sitting.
As long as the pair remains below that 152.40 area on a daily closing basis (New York 5 pm EST), there’s a good chance we’ll see another push lower toward 149.35. A daily close below that would expose 147.00 followed by 144.00.
There is, of course, the chance that this trend line comes in a bit lower than 152.40. Perhaps somewhere around 152.10. With that in mind, it may be a good idea to dial back your position size and scale in to capitalize on any further downside while minimizing risk.