If Not Brexit Then Something Else


  • Red flags of risk off were already there
  • Yen to depart from safety correlation
  • Looking to buy USDJPY below 100.00

DIDN'T MATTER - We've all been consumed by Brexit these past several days and even weeks and clearly the market reaction to the event has been intense. But there is something I think most people are forgetting which is exceptionally critical. That something is the fact that irrespective of the EU referendum and Brexit risk, global markets already looked to be on a trajectory that warned of a major shift in sentiment. So even if Brexit never even existed, with asset prices trading where they are, there would have been some other event to trigger the correction we have been seeing.

 

STRATEGY - From a strategy standpoint, I am trying to wrap my head around it all. When I look at the US stock market, I see a market deeply overvalued and due for larger declines in the weeks ahead. But if this is to play out, it could suggest more appreciation in currencies like the Yen and Franc. Let's leave the Franc alone for today. But as far as the Yen goes, could we see a collapse in US equities without USDJPY falling through the floor in conjunction with such a collapse? My contention is that we will indeed see such a breakdown, and this sets the stage for a nice USDJPY buy into the next dip below 100.00. 

Looking to buy $USDJPY below 100.00. Via @joelkruger

THE PLAY - So this is the play I will be looking to make this week and will keep you posted when and if the trade is taken. Remember, the Yen's status is more as a funding currency than a safe haven currency, and so with the currency back to levels where the government is watching and with Japanese fundamentals screaming for a weaker currency, I would think the USDJPY market finds support between 95.00-100.00 ahead of a major bullish run, all of this even if US equities are selling off. 

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