JPY crosses providing direction for now
EUR/JPY is back at levels last seen over 3 years ago and this is putting the other JPY crosses under pressure as well. USD/JPY has been relatively liquid over the last few months, bar a few nasty spikes down and up, which suggests to me that positioning is not at extreme levels and we are not seeing any panic runs either way.
I’m still in total disagreement with the majority of analysts out there who have been expecting a strong USD rally. Any structural liquidity issues, especially in emerging markets, which might be USD bullish will be more than outweighed by the fact that the collapse in global trade has led to a huge drop in demand for USD. Add in all sorts of uncertainties surrounding US Treasuries and I could not feel at all comfortable in holding USD for any length of time.
So what to trade?
USD/JPY: For now, be short and stay short for a test of 100.
AUD/USD: Any dips driven by AUD/JPY selling will be short-lived imho and I’m in dip-buying mode. The levels I’m watching are .6325/50 to begin with then .6260-80. Once the USD really turns, I’m expecting a 15% move higher in the AUD/USD.
Cable: Similar to AUD/USD, any dips will be driven by GBP/JPY selling and I feel that levels around 1.2250 will provide good value entry levels. That said, with cable we always need to be particularly vigilant as 300 pip over-shoots are almost the order of the day! I’m not leaving any orders, preferring to trade it on a day-by-day basis.
EUR/USD: The EUR looks pretty ordinary on most of the major crosses so I’m leaving it alone for now. Speculative positioning in some of the EUR pairs is getting towards ‘painful’ levels so no doubt we will get a very nasty stop-loss driven rally one of these days.