am/FX: USDJPY and USDCNH

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Looks like a good place to take profit on USDJPY and USDCNH longs. Also, BoC meeting sounds boring and not tradeable.

by Brent Donnelly

September 7, 2022

Anyone else play this

board game as a kid?

Good times.

Current Views

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 7, 2022

USDJPY and USDCNH

The USD is raging and USDJPY is now approaching levels and speed where one must wonder if the BOJ is becoming interested. My favorite measure to gauge overbought and oversold is the deviation between spot and the 100-hour moving average. Here is USDJPY and that deviation.

USDJPY (top) with 100-hour moving average and the deviation (bottom)

You can see that the normal deviations are around 2 yen and in early August we go to -3.5. We are currently at +3.62 which implies mega overbought. If you have any USDJPY or JPY crosses, this is the place to take profit in the short term. My long GBPJPY hit the take profit overnight so that one is done. I still don’t think BOJ will intervene, but we are probably close to a point where they might jawbone. Issue is, until they change YCC, intervention is pointless. Monetary policy has to be in line with FX intervention or it won’t work.

Bank of Canada

Central bank meetings are challenging these days outside the US because many countries like NZ, Canada and Australia are entering mildly restrictive territory with huge exposure to housing and consumer debt. So rate hikes are likely to inflict pain and are not unambiguously bullish for the currency.

The Bank of Canada has been hawkish a few times this year and those days have marked bottoms in USDCAD as you can see here:

USDCAD hourly since February, with BoC meetings marked

It’s boring, but I really don’t think the BoC meeting today is tradable. Whether they go 50, 75 or 100, it’s not obvious to me what USDCAD will do.

CNH

When USDCNH was 6.79 and many went long, the first target was 7.00. With the Party Congress scheduled for 16OCT, I would guess stability becomes a priority and the PBoC will not let USDCNH fly much higher from here. Again, a good level to take some short term profits on long USDCNH. Or sell 1-month 7.10s or 7.20s against your longs.

Have a fun day.