The yen has been in a downward spiral for weeks, and earlier on Friday it hit a new two-year low. Normally, that would suggest a trading plan.
But selling yen is just about the most popular currency trade these days, and short yen positions are enormous. Should you really pile in when a tidbit of positive news could cause a bout of short covering?
"It is getting a little crowded," says Boris Schlossberg, managing director at BK Asset Management, but "I still like the trade. I still think the trade is very sustainable into 2013."
That said, Schlossberg is a tad cautious. He wants to wait for the yen to recover slightly, and then sell. He suggests selling the yen against the dollar at 85.50 with a stop at 84.50. He wants to set an initial target of 86.00 "and then try to see if we can go all the way out to 88.00."
One thing could scuttle the trade, Schlossberg says: "if we do fumble the 'fiscal cliff.'" If a deal is not reached to avert major tax hikes and government spending cuts, then he thinks the dollar could take a tumble and the trade would be in trouble.
But if that doesn't happen, Schlossberg says, "as long as the U.S. economy remains in relatively good shape, I think the Japanese side of the equation is going to continuously pressure the Bank of Japan, and it looks like we're probably going to try to target that 90.00 level" on the yen relative to the dollar that Prime Minister Shinzo Abe seems to want.
Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm.
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