USD/JPY begins the week in dead center neutral and ranges from 150.58 to 148.54. JPY cross pairs however trade deeply oversold.
GBP/JPY for example trades this week from 180.79 to 183.31. GBP/JPY from the weekly open at 181.26 sits 47 pips above most vital 180.79.
CHF/JPY also begins the week oversold while CAD/JPY must break above 107.89 to travel higher.
For the BOJ, YCC remains inside the 0.50 to 1.5 band. YCC possibly changes by compressing ranges only if Inflation falls below the 2% target. Current Inflation at 3% is forecast by the BOJ at 2.5% and 1.7% for Fiscal 2024.
Fiscal 2024 for the BOJ references pre April 2024 prior to the next April budget in Fiscal year 2024 to 2025.
The 2nd YCC scenario changes only if overseas economies interest rates or Inflation travel off kilter. The direction for YCC bands is no change at current levels to a possible compression far into the future. An expansion to YCC is not expected as no reason exists from a GDP, exchange rate, trade and Inflation perspective to widen the bands.
The overall driver to YCC bands is the 10 year yield on the topside of the 1.5 line. The current lower and topside bands run -0.145 to the 10 year at 0.881 or 0.855 to 1.881.
The JGB yield curve not only remains positive but must continue the upward sloping curve in order for the BOJ to purchase JGB’s at -1.0 or 0.90. The next option is JGP purchases at the 10 year yield as the imperative for YCC is to cap the 10 year by stopping any rises.
The August and October 2022 intervention to rescue trade imbalances was the impetus driving a positive Japanese economy. Since October 2022, GDP, Wages and consumption expanded while Producer Prices and Inflation dropped.
USD/JPY dropped from 151.00’s in October 2022 to 127.00’s by January 2023. The Nikkei 225 rose from October 2022 at 25621.96 to June 2023 at 33772.89 or + 8150.93 points.
WTI Oil dropped in October 2022 from 80.87 to 63.70 by April 2023. JPY/XAU dropped along with USD/JPY from October 2022 to April 2023.
Corporate Profits and Fixed Investments also skyrocketed from October 2022 to 2023. The BOJ balance sheet expanded.
Intervention was a success as Export and Import lines dropped every month until Exports traded above Imports in April 2023.
Current trade is not imbalanced and no need for intervention however Imports and Exports share a tight relationship. The question to data dependency truly exists to determine the next direction to Imports and Exports. USD/JPY at 149.00’s is acceptable and under no threat to intervention.
The BOJ meeting runs the risk of no movements to USD/JPY as the Japanese economic situation runs perfectly.
The Week
EUR/USD, GBP/USD, AUD/USD and NZD/USD begin the week massive oversold . EUR/USD targets 1.0624 and GBP/USD 1.2255. AUD/USD heads back to 0.6400’s and 0.5895 for NZD/USD.
GBP/NZD and EUR/NZD trades deeply overbought and shorts is the only weekly strategy.
EUR/CAD and GBP/CAD also opens the week overbought. AUD/NZD trades deeply overbought however AUD/NZD remains a problem currency and recommended to refrain from further trade.
EUR/AUD remains just above 1.6603 and a required break to target 1.6467 and 1.6257. Longs and shorts to GBP/AUD are located at 1.9146.
EUR/AUD weekly shorts prevailed since August at 1.7000’s while GBP/AUD shorts remained since 1.9900’s from August.
GBP/JPY, EUR/JPY and CAD/JPY cautious longs exist to the week to target GBP/JPY 183.15 and EUR/JPY 158.98. Then shorts to target GBP/JPY at 182.38 and EUR/JPY 158.33.
USD/CAD begins the week in its usual massive overbought position. CAD/CHF and CAD/JPY trade deeply oversold. Overbought USD/CAD Vs oversold CAD/CHF and CAD/JPY trade in correct positions for a 3 trade combination.
USD/CHF trades overbought while nothing exciting exists to CHF cross pairs except for CAD/CHF.
USD/EM
USD/DKK trades overbought and USD/ILS as the Israeli Shekel. USD/NOK again trades massive overbought.
Watch for USD/PLN shorts on a break at 4.2221 to target 4.2065 easily.
Vast majority of USD/EM begin the week oversold.
Brian Twomey
