Gold: Profit Taken At 1200

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USD/JPY At Lowest Levels Since November 2014

• The dollar skidded to its lowest levels against the yen since November 2014 today, as a sell-off in European and US stocks continued into the Asian session and stoked demand for the perceived safe-haven Japanese currency. The flight to safety helped the yield on the benchmark 10-year Japanese government bond turn negative for the first time, sending it as low as minus 0.035%. JGBs have been on a bull run since the Bank of Japan adopted negative interest rates on January 29, under which banks have to pay interest on certain deposits held at the BOJ.

• With many Asian markets closed for the Lunar New Year holiday, thin conditions might have amplified trading moves. Most markets in the region will open from Wednesday, with Chinese markets returning next week.

• Japanese Finance Minister Taro Aso warned against a recent rise in the yen, describing the moves as "rough", a sign that policymakers are concerned the currency's gains may offset the positive effects from Abenomics stimulus policy. Japanese Economy Minister Nobuteru Ishihara said the yen has been gaining recently because investors consider it to be a relatively safe asset amid growing concern about the outlook for oil prices and emerging markets. He added he saw no change to trend in Japan’s economic recovery. Many Japanese policymakers prefer to hold off on direct intervention and hope that several rounds of verbal warnings would help soothe markets, as they see recent currency swings as driven largely by external factors beyond their control.

• The USD/JPY dropped to 114.21 low today. In our opinion the medium-term outlook is bearish with the target of 110.50. Bears need to break below a strong support level of 113.93 first, 23% fibo of the 75.31-125.86 rise (2011-2015). We have lowered our USD/JPY sell order to 117.30.

• Investors are waiting for Fed Chair Janet Yellen’s testimony tomorrow. We think that Yellen’s testimony in congress will be neutral for the USD. With markets having already scaled back expectations about the interest rate normalization pace, we doubt that the USD will react sharply, unless Yellen surprises markets with a less dovish speech, which may induce some USD buying in the near term. We expect Yellen to reiterate that further gradual policy normalization is in the pipeline, but most FOMC members want to see evidence that recent headwinds do not impact the US economy before pulling the trigger again.

GOLD: Profit Taken At 1200.00

• Spot gold rose as high as 1200.60 yesterday, its strongest since June 22 last year. Bullion gained 5% last week, its biggest such increase since July 2013, boosting gold bulls' expectations that the price can go higher as global headwinds could make it tough for the US Federal Reserve to raise interest rates this year.

• Underlining gold's rising draw, holdings in eight major gold ETFs rose to 43.3 million ounces on Friday, the highest since July 2015.

• We took profit on our long-term strategy at 1200.00, much sooner than we had anticipated. We expect a small correction on profit taking now, but the medium-term outlook remains bullish.

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