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Market Update: Correlations
Correlation has been weaker stocks (led by NAS) => lower bond yields => weaker USD
Stocks rallying (NAS still below 30K, USA500 back above 7700)Â =< bond yields ticking up (10 year 5.098% vs. 5.038% low)=> modest correlations the other way (EURUSD back to 1.12, USDJPY back above 158)
Market Update: FX tug-of-war
EURUSD (higher on the day but failed in test above 1.12) and USDJPY (bid back above 158 but well below its overnight high) as EURJPY firms but below key resistance (see chart)
With US yields off earlier lows but still down on the day (note bounce in crude), it may be a wait-and see day ahead of tomorrow’s CPI.
USDJPY 4 HOUR: Conspiracy theory
As noted yesterday, the break of a 7 day pattern around 158 would normally be taken as a bullish signal but these are not normal times given the threat of BoJ intervention. Conspiracy theory: If I was the BoJ I would have taken advantage of the dip in US yields and softer USD to give USDJPY a nudge to run stops below 158 (low 157.75).
USDJPY DAILY: Bullish signal?
USDJPY on the verge of breaking a 7-day pattern pivoting 158, which under normal circumstances would send a bullish signal for 159.;03 assuming158.50 is firmly broken. However, these are not normal times given the BoJ intervention threat although a hard sell to traders if the overall USD tone stays firm. In any case, a break of this pattern would be bullish.
USDJPY DAILY: 7 days in a row
Diverging today, down vs. the USD while others trade up, indicating JPY crosses continue to help pin it in a range.
Same chart as yesterday except trade on both sides of 158 extended to 7 days in a row, currently trading above it.
As noted, the longer this pattern goes on the greater the risk of as directional breakout once it is broken.
Market Update: EUR crosses
Worth noting is the FX market is having more trouble absorbing the USD buy side of EUR crosses, both when it was selling off earlier and then a modest bounce a short while ago (e.g. USDJPY bounced above 158).
Next key focus is on the ISM Services PMI, with special attention on the prices paid copmponent.
Market Update: Crosses weighing on EURUSD
When you see 2 currencies move in opposite directions vs. the USD Â it indicates real money flows. In this case JPY moving higher and EUR moving lower = EURJPY selling.
Note, market had more trouble absorbing the EURUSD selling component than the USDJPY selling.. See now whether EURUSD can hold above 1,1250
USDJPY 4 HOUR: Joining the party
JPY, which lagged yesterday, is the underperformer today as rising US bond yields support the dollar. Chartwise,158 is now pivotal with support as long as 157.85 holds. The general USD tone makes it hard for BoJ jawboning to have a lasting impact although the threat is a potential restraint on the upside, The market would go on higher alert if the current move makes a run at 160.
USDJPY VS. USDCHF: Moving in opposite directions
Price action suggests the Swiss franc taking over as a favored funding currency with divergent monetary policies plus stepped up verbal intervention in Japan today seeing USDCHF and USDJPY moving in opposite directions. Next key USDCHF resistance is at .8476 (weekly) USDJPY so far finding support at 156.50 Path of least resistance has been in CHFJPY (watch 188.45 support/double bottom)
USDJPY 4 HOUR: Reacts to verbal intervention
Timing of verbal intervention suggests the MoF/BoJ have drawn a line in the sand around 159 to prevent 160 coming into play.
While 158 is pivotal in setting the intra-day tone, 157.76 (just tested) is key support that would need to be firmly broken to confirm a break in current (up) momentum.
USDJPY DAILY: Too soon for an intervention alert?
JPY underperforms: Trading with a bid while above 158, stronger while above 158.50 in a market likely to keep one eye looking over its shoulder for intervention but seems too early to sound an alarm.
In this regard, any approach to 160, should one occur, would raise the alert level but even then much would depend on the overall dollar tone.
USDJPY DAILY – Will the BoJ inmtervene?
The move back above 158 will raise talk whether the BoJ will intervene and if so at what level given its change in tactics to not telegraph in advance when it might take action. Given the overall firm dollar (and US bond yields), intervention would be counterproductive around current levels so Looking at the chart. the obvious level it does not want to see trade above is 160.39. In any case, 158 is now pivotal with a bid as long as it trades above it.
USDJPY 1 HOUR: Did the BoJ defend 158?
USDJPY moving through 157.52 = 61.8% has put 158 on the radar, a level the BoJ may look to covertly defend given the void of key levels until 160+ on the upside.BoJ conducted a “rate check” with market participants late Friday, signaling potential preparation for currency intervention, reports Nikkei
Market Update (4 hour)
EURUSD extending low and now dependent on 1.1450 holding to keep focus on 1.15 or door opens further on the downside. Note EURJPY selling (after rising sharply post-BoJ)Â after USDJPY tested 158 and retreated weighing on the EURUSD.
US500 pivoting 7650 after move above it stalled.
XBRUSD: Market can’t make up its mind although charts show momentum pointed down.
USDJPY 4 HOUR: CLEAR UNDERERFORMER
With the Fed setting the bar high for being hawkish, the JPY has sold off after the as expected BoJ rate hike in what was not a unanimous decision.
USDJPY moving through 157.52 = 61.8% has put 158 on the radar, a level the BoJ may look to covertly defend given the void of key levels until 160+ on the upside.
So 2 levels to watch, both potentially pivotal
157.50 on the downside
158.00 on the upside
