EUR/USD/Flows and Orders/JPY crosses/USD/JPY

Lot of volatility in EUR/JPY so keep positions manageable

  • After opening 150 pips higher than its NY closing level, EUR/JPY dipped 60 pips in about 10 minutes and has now recovered 1/2 of that fall:
  • EUR/USD has broken above resistance at 1.3170 and has scope for further gains now towards 1.3250:
  • USD/JPY is choppy, either side of the previous 84.15 highs:
  • Market is very short of yen, especially the big speculative players:
  • My conclusion: The move higher in USD/JPY is reaching ‘silly’ status and is ripe for a very sharp downside clean-out. Maybe not in Asian trade, but during the next few sessions.
  1. Sean, I am a bit confused. Why do think this is a silly level? Because if market thinks about BOJ unlimited easing, then USD/JPY could go to 90. By that argument, the current level is cheap.

  2. Yes Jason, but it could take 2 years for Japanese parliament to agree on, and approve necessary measures? Hedge funds are limit long in some cases so once there are no buyers left then the profit-taking and trailing-stop-chasing will begin, no matter what the long term fundamental picture is. That’s my view at least

  3. I thought they have 320+ seats so they could create new laws much quicker? Isn’t that what this is all about? The market gets what they want. Are you saying even with such a big advantage, this still could take 2 years?

  4. I’m not an expert on Japanese politics, we will have to wait until fxgai turns up, but this sort of talk isn’t new and I’ve heard similar plans many times over the last 10 years in order to try and beat deflation. Even if it ‘only’ takes 6 months to get the laws through, they will be watered down and speccys cannot sit that long on their positions. If the mkt is already very long, USD/JPY will start falling soon imho (but I’ve been very wrong before Jason 🙂 )

  5. I totally agree with you on the positioning and I also think sell on silly rallies is a sensible strategy. I just want get more insights on the japan politics.

  6. you rang 🙂
    I am no expert myself but getting the two thirds should aid law making. It’s possibly now a question of whether Abe will tone down a little that he has responsibility. I don’t think the boj is about to turn on the printing presses tomorrow either so in the short term there is a good chance we see the highs of the year in the next day or two before we shutdown until next year? Then again after Christmas perhaps the hedge funds will start plunging back into the yen shorts, who knows… Sticking to small positions being wise is about the only thing I am sure of!

  7. Interesting views from Mr O’Neill last Friday as always:

    “assuming [Abe] wins and moves ahead with his plans, I think we are going to Y88, possibly very soon.”

    http://www.goldmansachs.com/gsam/advisors/education/viewpoints_from_chairman/viewpoints-pdfs/Q4_2012/2013-themes.pdf

    He’s been talking to skeptics too, and I’m skeptical myself, but then 88 doesn’t sound impossible either, especially in thin December markets.
    Still, I am bothered that US treasury yields are still well below 2%. At some stage I think the yen weakness will be unwound (assuming no rapid moves by the BoJ) unless yields start to make real moves higher. I suppose yields might move higher if the fiscal cliff stuff gets resolved? I don’t usually keep such a close eye on these correlations, but I am curious as to how long can the correlation between USD/JPY and US treasury yields stay broken. Perhaps until the market starts to focus on something other than Japanese politics. I’m not sure if Abe can say much more in the short term to keep things juiced.

  8. These CTAs and hedge funds will want to book profits before the year ends in order to try and save an otherwise bad year. Once it turns south they’ll all start bailing out, as usual.

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