As investors begin rethinking the tightening of monetary policy trade that has been so supportive of the like if USD, GBP and CAD the Japanese Yen has found support. The stubbornly low inflation outlook in the U.S, coupled with fragile growth in both the U.K and Canada has forced traders to abandon the central bank divergence play that has kept JPY weak for the best part of 2017.
Furthermore, it appears the BOJ is considering the possibility of adjusting their yield curve control in 2018, making that divergence trade even less attractive. If we consider this scenario with the excessively short positioning of the JPY, there is an argument that JPY could be in the early stages of strength based on rotation.
With the market heavily short JPY as the ground shifts in terms of fundamental drivers, I feel there is scope for an unwind of these positions that would catch the market off guard in what could be one of the big ‘pain trades’ in the coming months.
JPY Positioing is extremely short
Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any foreign exchange transaction.
Traders Corner, and any of its affiliates, will not be held responsible for any losses that the reader incurs as a result of utilizing the information contained within our articles. The content provided, is put forward in good faith and believed to be accurate; however, there are no explicit or implicit warranties of accuracy or timeliness made by Traders Corner or its affiliates.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.