USDJPY what comes next

This time last Monday, markets were digesting a woeful Japanese Q4 GDP print. Besides a modest sell-off in key Japanese equity indices the TOPIX and Nikkei, other Japanese asset markets including USDJPY and JGB’s barely raised an eyebrow.

By Wednesday afternoon USDJPY had begun ticking higher, reaching a point of no return around 10.30pm (Sydney time) that evening, breaking above the 110.30 high of Mid-January and the downtrend line from the 2015, 125.85 high. This possibility along with the trade idea below was flagged to readers back on the 11^th of February here.

“Should USDJPY break and close above 110.30/40 it would be initial confirmation a rally towards 112.50 is underway. It would also be a catalyst for traders to consider opening longs in USDJPY”

While the technical backdrop was a key factor behind the bullish USDJPY call, there were other forces at work behind the scenes including;

Japanese trust funds buying a record amount of foreign bonds during January which also involved purchasing USDJPY and XXXJPY.
The market was positioned the wrong way. Short term accounts were short USDJPY and XXXJPY as a hedge against Covid-19. Longer term accounts were overweight JPY (i.e. short USDJPY).

While short term accounts would have mostly covered their short USDJPY and XXXJPY positions by now, the Japanese GDP shock is likely to see a continuation of Japanese trust fund buying, potentially at a faster rate than previously. Elsewhere the notoriously slow moving longer term trading community is unlikely to have had sufficient time or opportunity to reduce their JPY longs. Both of these factors support the idea that USDJPY will be bought on dips despite risk-off moves in other risk assets.

For readers that were able to take profit on our trade idea last week, I am looking for a corrective pullback in USDJPY to just below 111.00 to re-open longs with stops placed below 109.65. Keeping in mind that a convincing break/close above last week’s 112.23 high as well as the April 2019 high of 112.40 would be initial confirmation the next leg higher in USDJPY towards 114.25/55 has commenced.

Source Tradingview. The figures stated areas of the 24th of February 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.