Gold and the Yen Set to Weaken; a Sign of Rising Global Risk Appetite?

The charts are showing Gold and the Yen are poised to weaken.

Both these assets are safe-havens which means that investors put their money in them when markets get risky, such as when there is a crisis.

The fact that both look like they are about to fall indicates the opposite – that instead of running to safe-havens, investors may be feeling more confident about taking on more risk.

Gold is the safe-haven par excellence and the chart below shows the commodity breaking below a trendline.

It has already breached the trendline (blue dotted line) and according to technical analysis theory assets move the same distance below a trendline (y) as the move prior to the break (x).

This seems to indicate the possibility of a move down to 1210, possibly even 1203 where a combination of moving averages are situated and likely to act as an obstacle to further declines.

Market analyst Richard Perry, of online broker Hantec, is also bearish Gold, with the break of the trendline bringing the uptrend into serious question.

"With the strength of yesterday’s bearish candle, the medium term uptrend is now coming under serious scrutiny. My expectation that this is simply a corrective move within the medium term uptrend is on the brink of breaking down," said Perry.

The yen is showing similar signs of weakness against the Euro.

EUR/JPY has broken above a trendline signally Euro strength and Yen weakness.

Again, according to technical analysis theory assets move the same distance above a trendline (b) as they moved prior to the break (a).

For EUR/JPY this indicates an eventual target at about 121.15, just below the red 55-day MA.

"The sell-off on the yen in the past few days has driven a significant recovery on EUR/JPY. The market has been in corrective mode for the past few weeks, however a downtrend has now been broken by the rally," commented Perry highlighting EUR/JPY as 'chart of the day'.

The general rise in risk appetite is likely to help equities and emerging market currencies such as the Rand, Rouble and Rupee, all other things being the same.

In a recent note by Bank of America a rise in risk appetite appears to already  be underway in the increase in equity inflows into Asia, a sign investors are happy to invest in more risky emerging market stocks and shares.

“In the absence of any major announcement of US tax reforms/Fed policy, equity inflows to the region could continue to compress risk premia. The three-month rolling sum of equity inflows to the region is still far from the peak. Asian central banks generally have backed down from intervening strongly and have let Asia FX appreciate a bit against USD,” commented BoFA’s Claudio Piron.

Risk premia is another name for interest rates, which are a barometer of risk given they rise on risky lending high and fall on safe bets.