🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

Here's How USD/JPY Could Drop To 100

Published 05/16/2014, 06:28 AM
Updated 07/09/2023, 06:31 AM
EUR/USD
-
USD/JPY
-
CAD/USD
-

Europe and Asia:

  • JPY Revised IP 0.7% vs. 0.3%
  • EUR French NFP -0.1% vs. -0.1%
  • EUR Italian Trade Balance 3.87B vs. 2.47B
  • EUR Trade Balance

North America:

  • USD Building Permits 8:30 AM
  • CAD Securities Purchases 8:30 AM
  • USD U of M 10:00

Currency markets were extraordinarily quiet on the last trading day of the week with most of the majors tracing out very narrow 10-20 pip ranges amidst little fresh newsflow and an essentially barren economic calendar.

The dollar remained on the back foot, hampered by the ever shrinking US Treasury yields, but appeared to have stabilized after suffering steep losses against the yen yesterday. With US 10-year yield steady at the 2.50% level USD/JPY found some footing at the 101.50 level as risk aversion flows have eased.

The pair has enjoyed very strong support at the 101.00 figure having found buyers four times at that level since the start of the year, but much of the thesis behind the long trade is based on the widening yield differentials between the two currencies - something that has not happened this year. Indeed, the USD/JPY trade was perhaps the biggest consensus recommendation in 2014 but so far has failed miserably as it languishes near the yearly lows.

What is perhaps most surprising is that the decline in US yields has occurred against a relatively robust US economic background with the most recent data points yesterday showing an uptick in Empire, Philly Fed and a sharp drop in jobless claims. For now however, the Treasury markets are ignoring the news as flight to safety moves out of European periphery bonds are dominating the price flow.

Today the North American calendar remains subdued, but traders will look carefully at the latest housing data and consumer sentiment numbers. The market anticipates a small improvement in housing starts and building permits and very slight uptick in U of M report. If the US releases surprise to the upside they may provide a temporary bump to USD/JPY and could push the pair towards the 102.00 level.

However, some analysts including the famed bond king Jeff Gundlach are predicting "the mother of all short covering rallies" in the US Treasury complex. Indeed other analysts have pointed out that massive short open interest on 10-year futures could provide the fuel for such a move. If that scenario pans out then USD/JPY could drop below 100.00 triggering a massive liquidation move in FX as well.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.