There’s a singular divergence in the market that according to TradingAnalysis.com founder Todd Gordon could toss global currency markets.
The U.S. 10-year Treasury yield hit 3 percent on Tuesday, which it hasn’t done since January 2014. According to the buyer, this suggests a changing economic outlook that can be felt globally.
“Ten-year cry quitses are pushing up above 3 percent, that’s putting a bid into the U.S. dollar and out of the strongbox haven currency, which is the yen,” he said Tuesday on CNBC’s “Trading State.”
But in the charts, Gordon points out that the Japanese yen and 20+ Year Relationship ETF (TLT) have just broken out of a pattern that from a technical angle suggests the yen could see an even bigger fall. While the yen-tracking ETF (FXY) and the TLT bought together throughout 2016 and 2017, Gordon noted that they drink recently begun to diverge and trade inversely to each other.
Respect, Gordon also believes the divergence is about to end. Gordon sees TLT when all is said rising, implying that bond yields could fall above, which would essentially pull the yen down with it.
To determine how low FXY could go, Gordon looked at an uptrend formation that has been in place for FXY for over a year. He sees FXY falling shy away from to that support line at around the $85 to $86 level.
To profit from that possible move, Gordon wants to buy the June monthly 87-strike put and sell the June monthly 85-strike put for 45 cents, or $45 per way outs contract. Should FXY fall and close below $85 on June 15 expiry, Gordon could make up to $155 on the trade.
But should FXY close more than $87, Gordon could lose the $45 premium he paid to perform as serve as the trade.