The theme for 2014 is consensus. There is an overwhelming consensus of analysts looking for the same things in the year ahead. We look at four crowded trades and cast a verdict on whether the groupthink will be proven right or wrong.
#1: Those tempting yen technicals
For #1 on this list I could have put US dollar strength — it’s tough to find anyone who isn’t excited about the prospects for the US economy in the year ahead and that extends to the dollar.
Instead, I’ll give a nod to the technical analysts and the appetizing setups in the yen crosses — especially EUR/JPY, GBP/JPY and USD/JPY. By almost any measure, the near-term moves in those pairs are overdone after 7-9 consecutive weeks of gains but those gains represent long-term technical breakouts.
The technicals are simple but that’s why there is such a strong consensus about further gains, likely after a retest of the break points.
EUR/JPY weekly – has also cleared the 61.8% retracement
The bounce in GBP/JPY has cleared the 50% retracement but get another lift with a break above 61.8%.
GBPJPY weekly
The measured target of the break of the wedge is above 110 in USD/JPY.
USD/JPY weekly
Buying the yen crosses was the best trade in 2013 but the Bank of Japan and the government have plenty of unfinished business and would still like to see those crosses much higher as the battle against deflation and stagnation continues.
I think thousands of pips remain in longs as these pair retrace the intense declines in the crisis. The key is the timing. Is a 200 pip retracement large enough to jump in, or do you wait for a larger decline?
These are already crowded trades as the CFTC positioning data shows but even periodic bouts of risk aversion have done little to shake out the longs. There are two trades, buy the dips or buy and hang on for dear life.
