USDJPY seasonality is bullish but it’s OK to be patient on entry
A piebald moose in Norway
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USDJPY Buy the Dip
Current Views
Long EURGBP @ 0.8552
Stop loss 0.8479
Take profit 0.8694
Buy USDJPY @ 150.56
(Limit order)
Stop loss 148.69
Take profit 154.44
USDJPY
Much like in 2016, when the BOJ cut rates to negative and USDJPY went down, this month’s BOJ decision to exit negative rates is a nothingburger and a red herring for USDJPY. The pair continues to follow some combination of US yields and Nikkei, with yields the primary driver, Nikkei second, and BOJ policy a distant ninth or something. We are now in the most bullish seasonal period of the year for USDJPY.
This seasonality reflects year-end JPY selling by Japanese accounts around the turn of the Japanese fiscal year. The effect was strongest from 2005 to 2013, but the hit ratio remains high even as the magnitude of the impact has been smaller in recent years. Today is already the 25th, so here is performance now until 06APR.
If we look at USDJPY vs. rates and the Nikkei, it looks a bit high at the moment, so there is no huge rush to get into long USDJPY here.
And we are banging up against the critical 152.00 level just as Kanda fires one of many recent warning shots.
“The current weakening of the yen is not in line with fundamentals and is clearly driven by speculation,” vice finance minister for international affairs Masato Kanda told reporters Monday. “We will take appropriate action against excessive fluctuations, without ruling out any options.”
All this makes me want to buy dips in USDJPY, but not be long here. As we trace out a 150.25/152.00 consolidation above the mega 149 support post-BOJ, it makes sense to buy the dip at 150.56 with a stop loss at 148.69. This offers a nice entry point ahead of the fiscal year-end seasonal buying along with any month-end USD buying by US corporates. This week’s calendar features a decent variety of second-tier excitement, culminating with the Good Friday Double Feature (Core PCE and Powell).
Given the dovish Powell presser last week, perhaps the surprise factor would be continued strong US data or a bit of a flip flop from Powell as he chats with Kai Ryssdal at the end of this week.
Calendar
Here’s the calendar. Bond auctions, some US data, Fed’s Waller on Wednesday, and many other mid-tier events are scheduled.
Final Thoughts
The EURGBP long is alive. Despite being a fairly boring trade so far, the reasoning remains valid. It’s interesting how the Fed is gambling on lower inflation and planning to cut rates despite their inflation forecast showing PCE above target this year. Not to mention buoyant asset, oil, and gasoline prices. There is plenty of room for a policy error here, but let’s see how the data pans out. The future data, not Powell’s current opinion of the economy, will determine policy.
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Have a moosey day.
https://outdoors.com/piebald-moose-norway/
These patches are due to “piebaldism”, a genetic mutation affecting pigmentation, which is a fairly common occurrence in domesticated animals, such as horses, dogs, and cattle. It refers to the melanin-forming cells in areas of the skin and hair. It can also occur in humans.
More about piebaldness: https://en.wikipedia.org/wiki/Piebald
The various types of magpie gave their name to pied coloration. The bald eagle derives its name from the word “piebald” in reference to the contrast of its white head and tail with dark body. Dogs and cows are commonly piebald.
HT CnD
