Risk trade review in light of Yen’s triangular consolidation

Yen is known for its liquidity and safe haven status in financial world. Anyone who is a bit familiar with financial market knows, how suddenly and fast Yen could outpace almost all asset class in return in time of heavy risk aversion.

I would review, last three trading days (including today) of price action in Yen and equity markets.

• Lately in spite of sell offs in equities, yen hasn't performed like it had back in August, though Nikkei has now fallen below August low. Volatility isn't spiking like it had back in August, when China devalued Yuan.

Nevertheless Yen is providing vital clues to risk-on and risk off theme through its price action.

As shown in the chart, post August turmoil Yen has moved into a triangular consolidation against Dollar and price action is suggesting as we close in on the peak of the triangle a break-out is very much likely.

• Now looking at Friday's price action, Yen was losing ground fast giving the feel of a break out on the upside (USD/JPY), however that turned sour along with equities. Yen was back within the range by end of day, clearly suggesting there could be further risk off in the coming days. At the same time consolidation suggested Yen might reach as low as 119.3 area from 120.5.

Next day's candles of both equities and yen filled the expectation. Yen strengthen to 119.7 against Dollar from 120.5, while S&P 500 dropped from 1930 to 1880 (SPX500).

• Now looking at today's price action, Yen is on the way to form a hammer or Doji as it is up sharply trading around 120 after reaching consolidation support around 119.3. Price action is suggesting there could be risk-on going ahead and Yen might weaken further towards at least 120.5 area.
• Kindly note, final closing today would be vital to assess the risk trades tomorrow and next.