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FX Breakout Monitor: JPY rattles its cage

Forex 5 minutes to read
Picture of John Hardy
John J. Hardy

Global Head of Macro Strategy

Summary:  The post-FOMC reaction across markets has offered a rather confusing backdrop for currency trades – but today’s JPY move sends the clearest signal of the week that our focus for potential breakouts should be on JPY crosses.

For a PDF copy of this edition, click here.

A very confusing couple of sessions for currency traders as we first saw a USD sell-off and risk appetite shoulder shrug in the immediate wake of the Federal Open Market Committee decision and then saw an enormous risk-on rally yesterday, followed by today’s sudden reversal of almost equal magnitude less than an hour after the US market opened today. One suspects some of this may be linked to the quadruple witching, or expiry, of futures and options contracts. But today’s JPY signal provides suddenly clarity if we close today anywhere near the levels as of this writing and today’s FX Breakout Monitor snapshot.

A further strengthening of US Treasuries combined with any continuation in the ugly sell-off in equities could feed a powerful move – especially given widespread signs of complacency. Risk appetite weakness spreading to EM like it did today is potentially additional fuel for JPY upside. Investors and traders may find it unsettling if even this latest violent swing to a more dovish stance from the Fed can’t support the equity market.

Breakout signal tracker

We’ll add a USDJPY short position to our signal tracker as the most straightforward way to look at the potential for additional JPY strength. We place the stop above the 111.00 area.
breakout monitor
Source: Saxo Bank
Today’s FX Breakout monitor

Page 1: USDJPY smashing down through the local breakout level today and deserves additional focus next week for more downside risk. EURJPY is doing the same after today’s very weak Eurozone PMIs. Elsewhere we note the directional sympathy in EURCHF, which is nearing a major support level in 1.1200.
breakout monitor
Source: Saxo Bank
Page 2: Today saw an ugly reversal in risk appetite as EM trades consolidate on the sudden shift in the risk appetite after a long run of strength in anticipating Fed dovishness. Note that AUDJPY is also looking at a downside break and even GBPJPY despite a firmer sterling today.
 
breakout monitor
Source: Saxo Bank
Chart: USDJPY

USDJPY tried to bounce yesterday as the JPY has a hard time appreciating when both of the important coincident indicators – bond strength and risk off – aren’t operating in the yen’s favour. USDJPY is the most straightforward way to trade the JPY and could head for 108.00 or lower here on a more significant deleveraging across markets.
usdjpy
Source: Saxo Bank
Chart: EURJPY

EURJPY came suddenly alive on the weak flash Eurozone March PMIs today – this sudden injection of momentum could finally lead to a more notable directional move after a long period of rangebound behavior and false breaks.
eurjpy
Source: Saxo Bank

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