JPY and CHF

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Long USDJPY trades seem to be unwinding into very few buying hands, and I’m going long EURCHF.

by Brent Donnelly

December 7, 2023

9 years in development, estimated budget >$1B

ICYMI GTA VI

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Long EURCHF @ 0.9438

Stop 0.9339

Take profit 0.9644

December 7, 2023

PDF version

JPY

The runup trade into NFP and BOJ has accelerated and we are again getting the old “BOJ is live!” move ahead of an upcoming meeting. Expectations for a weak NFP are part of the mix, but really I think (as I usually do!) that USDJPY is driven by US yields and oil, and the BOJ is mostly a red herring, other than the occasional headline-driven move or the move on the day of the meeting itself. The vol and beta of US yields is so much higher than Japanese yields that they rarely have a lasting impact but can be dominant on a given day.

The leads and lags have been tough (as they often are) but you can see yields are still moving with USDJPY. After the 30OCT BOJ meeting, the market briefly decided that US yields don’t matter because VIX is low so vol to carry looks good. This is the old “I’ll ignore the change because the levels are still high” fallacy as markets almost always react to changes and do not maintain directional momentum just because of levels. A company with strong but weakening earnings is more likely to see its stock fall, not rise.

What’s notable about the first chart today is that whether you use US 10-year yields or the US/Japan differential, you get the same answer. That’s because US yields dominate the equation.

USDJPY vs. US 10-year yield and US/JP 10-year differential

That rally to 152 was enough to kill many of the cross/JPY bears, including my CADJPY, and now the CTAs and carry machines are unwinding into a market with very few buyers.

Also, the collapse in oil is bearish USDJPY (and yields) as you probably recall Japanese oil importers buying at Tokyo Fix was a notable feature of the USDJPY story in 2022 and now Japan is selling USDJPY almost every single day and has been doing so since November 16. That’s not a coincidence, it reflects changing Japanese investor preferences on lower US yields, and an absence of Japan importer buying as they are fully or perhaps even overhedged.

Long EURCHF

We are starting to see some interest to sell CHF for SNB. Nothing major yet. EURCHF made a new low for the cycle and then ripped, creating a slingshot reversal and a clear rip through the 200-hour moving averages. The simplest trade at this point is just to buy EURCHF with a stop at 0.9340 looking for 0.9599. The EUR side is a bit of a concern, macro-wise, but the EUR-negative story has been front page news for a week or so… And I cannot think of a numerator currency I prefer because I don’t want to have USD exposure through NFP. The entry point is good, and the chart is nice.

The rationale for going short CHF is outlined in the last two am/FXs. TLDR is SNB needs looser policy and needs to stop buying CHF ASAP. Adding long EURCHF to the sidebar, 0.9339 stop loss, take profit at 0.9644. Note the 200-period MAs on the 15-minute chart defined the downtrend since 0.9630 and I’m looking for a symmetrical move back there. I looked at options, but I think spot is better.

15-minute EURCHF: False break of major low (0.9410) and recovers to clear the two 200-period MAs

Final Thoughts

I have been using Claude AI recently and found it better than GPT3.5 FWIW. I did a 40-minute interview with a finance professional the other day. After it was done, I compiled my 10 takeaways from the video. Then, for fun, I put the transcript into GPT and Claude. GPT stepped on a rake and Claude gave me 10 good takeaways, 8 of which matched the takeaways I had already compiled beforehand. Pretty awesome. One task sample size here obviously but Claude won in this case.

Have a rough and tumble day.