JPY strengthens as rates and equity market correlation strikes back
What doesn’t go up must come down. Still large short JPY positions didn’t enjoy the retracement in equity markets and steady US yields for long. After a late Friday spike we spent Monday’s
session in a lacklustre 108.50/75 range, unable to even retake the 109 handle. The 99% confirmation Kuroda will get a second term as BOJ governor didn’t move the crowds for more than 10 pips either.
It was an omen for what to come. Important in my view is that it happened in the Tokyo session and not on the back of European/US correlation algo traders.
There was no news to trigger this unless … was there ?? I think there was one, totally overseen as it’s not programmed into the machines to react to this. After posting FSA’s intention yesterday it made me reflect on the impact and what I thought may happen could have occurred much earlier than expected, anticipating any decision .I reckon the news Japanese FSA is to review the margins for retail FX accounts might have scared some of the Mrs Watanabe’s out there who are traditionally long carry trades, alongside and funded by large stocks holdings, as Abe wanted and spurred them to have from 2012 and Trump’s election sending the equity markets to the skies ordered them to have.
Add to that the continued good economic performance and the dilemma that it creates once Kuroda (or the 0.1% chance if isn’t him man) starts his second term .
So now we’re down here , what’s waiting? I can see 2 levels to the downside . We have the Sept 2017 low @ 107.31 and, if that also would give way, a sloping trend line with the previous 108.13 low , which would take us to 106.40/45. Topside hurdles are forming @ 107.89-108.40 and 108.80.
I had some opportunistic trades as 108.40 broke, am small short again since the 107.89 break, with a stop back through 108.10. I don’t have anything large in the books in JPY as I don’t rule out Japanese official involvement through stocks or ETF’s to stem the fall. IF that would occur , it’s still a sell on rallies 108.80-109.10 feels like a great zone to go short in more decent size.
USDJPY D1 13.02.2018
USDJPY W1 13.02.2018
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I think you’re spot on with the reason K. That news on margins could be big as we know there’s a huge amount of JPY futures shorts too. If they have to liquidate to cover margins, that could relate to some big moves.
Exactly, it went a bit unnoticed at the time as the market extrapolates to what may happen elsewhere but this specific Japanese issue may also cause the retailers to have to repatriate foreign invested funds to up their margins. The only other option is to cut positions. However we turn it, it should see JPY buying in some form. Now it is not decided yet, we need to equally listen for any denial as it will have the opposite effect