JPY Trading Outlook
USD/JPY An array of barriers, stops and tech hurdles were cleared out above by USD/JPY's surge in response to much-better-than-expected US GDP data and a sizeable uptick in the Fed's preferred inflation gauge, the PCE. Mediocre ADP was close enough to f/c to not impeded the Tsy yield & USD surges. USD/JPY ran barriers and stops at/above 102.50 & 103, as well as the May 2 swing high at 103.02. The latter was probed before the FOMC statement creates a brief spasm of buying up to 103.15 session highs, at which point the Fed's low-for-longer mantra, even after mandates hit, prompted some profit-taking on longs. Traders would feel more comfortable about today's breakout beyond this year's downtrend (& reversal of the vol one) going into Friday's US Jobs report if USD/JPY daily oscillators were not now as overbought as they were when the early April & June price peaks were reached. EUR/JPY ran stops above 137.83, the daily Kijun and 50% of the July slide, for an 137.87 intraday peak. The Fed statement falls roughly into the risk-on folder, but EUR/JPY was already in oversold recovery mode. Poor Japan June IP reinforces the need for BOJ's QQE
USD/JPY The thin daily Cloud was finally cleared, along with 102 options/offers and the 200-DMA at 102.10. Nikkei gains and demand for longer-term Tsys were the main drivers. A 4-bp rise in US 2-yr yields due to the roll gave front-end traders something to ponder, as did a big jump in US Consumer Confidence. Net spec yen COT shorts are back down to where they were in late '12 when USD/JPY traded in the lower 80s, but prices will have to break beyond this year's down TL, Wed at 102.35, on the back of strong US data and growing expectations of Fed tightening to bolster bruised buyers. The last five daily cloud breakouts were short-lived, spending little or no time beyond the upper 21-day Bolli band that's now expanding toward the '14 down TL noted above. June Japan IP tonight will set the stage for US Q2 GDP, July ADP and the FOMC announcement ahead of Friday's NFP. 1-mo vols perking up from record lows, but there's no clear reversal of this year's downtrend yet. EUR/JPY fairly stable despite fresh EU sanction against Russia. Month-end rebalancing flows a modest offset. Carry/commodity/EM's crosses struggled under their own weight.
USD/JPY The Nikkei took out the July highs to begin filling a 15,690-15,485 gap from late Jan, which was enough of a boost, along with a rise in Tsy yields, to keep USD/JPY nearly pinned to its daily Cloud (101.90-92) for most of Monday. A soft US Market Services Employment reading and downside miss in Pending Home Sales helped engineer the 101.76 late-London low, but prices are closer to the 101.91 highs heading toward the NY close. Beyond the Cloud are offers into 102 option barriers and heavy expiries on Thurs. 1-mo riskies have seen the bearish skew nearly erased, while 1-mo ATM vols have slipped intraday and remain near historical lows along with historical vols. So if a breakout is brewing, the market isn't prepping for it. The converged 100 & 200-DMAs at 102.05/15 last have some buy stops beyond them. The thinness of the daily Cloud suggests it will be breached, but the down TL from Jan, at 102.37 Tues, may well suffice as a topside target. EUR/JPY remains wedged between this year's 136.25 low and recent highs by 137.35. Tight ranges for the other major crosses ahead of key US event risks. Japan Jobs and Retail Sales data out tonight.
USD/JPY The daily Cloud top at 101.95 couldn't be removed with the London open spike, or after the mixed US Durable Goods report, leaving intra-week longs and latent bears to push prices back toward the o/n lows into midday NY. That those 101.70 lows couldn't quite be retested speaks to the recent dip-buying mindset and broader preference for dollars. The Nikkei finished the week close to July recovery highs, while the US yield curve flattened further on falling L-T rates. The converging 100- & 200-DMAs at 102.07 have exporter and supposed 101-102 DNT offers ahead of them, with stops beyond 102.10. EUR weakness, reinforced by this week's EUR/USD close below the up TL from '12 lows, kept EUR/JPY heavy and below recent highs by 137.35, but not yet below the '14 low at 136.25. IFO and no good news from Ukraine weighed on the cross. NZD/JPY, which has been 0.9+ correlated to the S&P 500 on monthlies since '07, is closing the week below its up TL from '12 lows. Next week's trading will focus on the FOMC and the NFPs. Japan's June Household Spending will be an early-week focus as the after-effects of the Apr tax hike continue to be measured.
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