JPY Trading Outlook
USD/JPY A soft US Durables report cut the legs out from under USD/JPY's London session rebound to 108.17, but the 107.69 lows were attractive enough for macros and Japanese buyers given the fairly steady Tsy yields and the option hedging ahead of 1.3bln of 108 expiries at 10ET. Home prices disappointed, but Consumer Confidence was so far above f/c that it forced USD/JPY to retrace nearly all of the early NY slide (the 107.69 low hitting the hourly up TL from the Oct 15 nadir). Now the focus swings back to the FOMC announcement Wed and the BOJ's on Friday. Policy from both banks is expected to remains unchanged. The BOJ's semi-annual f/cs are expected to features lower FY '14 GDP and CPI f/cs, though the BOJ's FY '15 2% CPI f/c is expected to stay. Kuroda has noted there is no strict timeframe for the CPI goal, only that it will be met around FY '15. Strong Sep Japanese Retail Sales may give the BOJ more credibility in their assertion the VAT tax hike impact is waning and growth is picking up again. 106.70-107.40 is the near-term USD/JPY range. EUR/JPY is right on the 50% Fibo & weekly Tenkan at 137.68 into close. Crosses rise w stocks & commodities.
USD/JPY General USD softness, a bit of renewed equities selling, and slightly lower Tsy yields amid below f/c econ data du jour dragged USD/JPY below hourly Cloud support by the 107.73 o/n low after the 108 option expiry at 10ET. Light stop-loss selling was triggered and prices eventually breached the daily kijun & prior 50% Fibo at 107.64 for a 107.60 session low. There is general concern that the yen's retreat last week was just a correction within a broader derisking trend; one that is starting to manifest itself in renewed stocks mkt weakness. This angst is partly being fed by the event risk from the FOMC on Wed and the BOJ meeting Friday; the latter also providing updated econ forecasts that could hint at whether the BOJ will increase or modify its QQE in the coming months. Friday will also bring Japan CPI among several other key economic releases, so traders will be wary of overtrading before then unless the FOMC stir the pot on Wed. ECB stress tests didn't put to rest the question of deflation risk and what the ECB might end up doing on the QE front to address it. EUR/JPY shed its o/n gains ahead of the NY open, but Fri's low by 136.50 was untouched.
USD/JPY Financial market anxiety, the VIX for instance, might not be back down at sleepy lows seen over the summer, but they have retreated about two-thirds of the way from the recent peak toward the summer trough; a move that has been mimicked by the USD/JPY's retracement of Oct's 110.09-105.20 trading range. That USD/JPY never retreated as much as the VIX climbed from its summer lows shows how demand for US assets, from inside and outside of Japan, persists. The same can't be said for EUR/JPY, which got well below its 135.75 summer lows last week and has struggled to retake 137 with this week's broad rebound in risk. Flow data show Japanese investors have been exiting EUR trades (mostly OATs) in favor of Tsys this yr as the EUR govt debt yields tumbled, in some case even below Tsys yields. The ECB's negative depo rate is forcing money out of EUR reserves, while the BOJ's QQE, negative Trade balance and need for returns above what JGBs offer make the yen a short, all else being equal. USD/JPY's rally and close above 107.64, Kijun & 50% Fibo resistance Thur give that pair a bullish, S-T technical bias. AQR Sunday is next risk.
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