am/FX: JPY Rodeo

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USDJPY, GBPUSD and other currency pairs are on the move in what may be a return to risk parity.

by Brent Donnelly

September 9, 2022

1926 – 2022

RIP

Current Views

Long AUDUSD @ 0.6758

Stop loss 0.6684

Take profit 0.6994

Long GBPUSD @ 1.1518

Stop loss 1.1374

Take profit 1.1839

Long GBPCAD @ 1.5133

Stop loss 1.4884

Take profit 1.5684

September 9, 2022

JPY Rodeo

Interesting turn in the dollar after massive selling of EURUSD post-ECB yesterday. On Tuesday I wrote about how USDJPY had touched the exact extreme of the prior move in terms of its deviation from the 100-hour moving average and we were just about back to that MA before this morning’s explosion off the lows.

USDJPY vs. 100-hour moving average

I have been writing about two-way risks and a possible turn in the dollar as the market reacts in delayed fashion to pushback from CBs and a less bad EU/UK energy situation. Now the question becomes whether this is a meaningful turn for the USD as the energy crisis panic abates, or just a garden variety correction. The EU and UK energy crisis is becoming another transfer of liabilities from the consumer to the sovereign, like COVID.

Kuroda stepped up overnight:

*KURODA: RAPID WEAKENING OF YEN IS UNDESIRABLE

His tone has changed since July, which makes the 21/22SEP BOJ meeting super interesting. BOJ meetings have been in focus of late, but this one will be particularly notable. You can’t talk up the yen while you are doing YCC. So perhaps the 25bps cap will not outlast Kuroda’s term (which ends March/April 2023). That week of 21SEP will be spicy with Fed, BOJ and BoE all bam bam bam.

USDJPY is not for the faint of heart right now. Down 270 and up > 100 overnight.

My feeling is that these risk parity positive moves continue into CPI next week as falls in commodities, housing, autos and so on mean the market would rather position for weak CPI, not strong.

The rapid trend down from 1.21 to 1.14 in GBP was defined by the 200-hour moving average and we are now testing that in the other direction. If this is a real turn for cable, we should not go below 1.1500 now.