I'm Not Buying It


CLOSER LOOK - I still have my doubts with USDJPY. We've seen a big bounce over the past several sessions, with the market rallying from the 108.00s all the way back towards 115.00. It's been quite the move and yet, I still wouldn't rule out the possibility for another sharp reversal to the downside that even results in a break to fresh yearly lows. Technically, while the surge back above 112.00 has officially taken the immediate pressure off the downside, it doesn't mean the structure is now bullish. My view of the major pair right now is more neutral. Remember, this is a market that had consolidated earlier this year, with the range high coming in at 115.60. And so, as far as I'm concerned, if we're below 115.60, we can still see another bearish move. 

ONE - I would also add the fact that there are two other contributing factors to this view that we could see another big drop in USDJPY. The first is that there has been a clear shift in sentiment towards the US Dollar, with the major currencies rallying against the Buck. The signs of legitimate bases off multi-year lows in both the Euro and Pound suggest the possibility of the onset of the start to a secular decline in the Buck. While it's true the Yen doesn't correlate as positively with the Euro and Pound, if we do see these currencies run higher, it should at a minimum keep USDJPY capped.

Just because $USDJPY isn't bearish right now, doesn't mean it's bullish. Via @joelkruger

TWO - The second reason is equity markets. I don't know if it happens in days, weeks or months, but we should see a nasty correction in stocks that will open the door for an intensification of Yen demand on its traditional correlation with flight to safety flows. So while there is a view out there that the Yen will collapse, with some even calling for +200.00 USDJPY, I'm not sold on this idea just yet and still believe the Yen has more room to run (ie USDJPY lower). So with that said, I will be looking to sell into this run up if the opportunity presents and I am putting you on notice to stand by for a possible short here in the hours ahead. 

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