USD/JPY continues to drive impact in broader USD themes and given the fact that there's still considerable carry remaining in the pair, the consequences of a deeper sell-off could bring impact to several macro markets. USD/JPY is about 40% above the early 2021 lows when the carry trade began to build on the back of stronger US inflation, and even as US rate cuts started last year and BoJ rate hikes began, the carry trade only started to unwind - until the bounce from 140.00 in Q3 of last year.
That same 140.00 level was back in action in April, right around the time that the USD bounced from a big spot of support on its own chart. And the four weeks that followed showed similar bounces in both markets. The pain for bulls last week was, similarly, felt in both markets.
But this week has shown a different tone as a higher-low has held in USD/JPY around 142.50 and for DXY, around the 98.98 Fibonacci level. As looked at in the USD post, there's now the possibility of a monthly doji and if that completes, there's turn potential for the US Dollar.
This would need to be supported by continued recovery in USD/JPY and for that, we're likely going to be looking for continued softening in longer-dated Japanese yields. Or else - as the divergence between Japanese and US rates continues to narrow, so too could the motivation for hedges and carry trades to close, putting downward pressure on the pair and the US Dollar.
In that scenario, I think USD/CAD and GBP/USD could remain as attractive venues for USD-weakness to play out. But in the opposite, with USD-strength showing, I'm still favoring EUR/USD for USD-strength to continue playing out. And also for the Yen, USD/JPY has been 'trappy' on both sides and I'd instead look to work with Yen-weakness against the British Pound (GBP/JPY) and Yen-strength against the Euro. - js
That same 140.00 level was back in action in April, right around the time that the USD bounced from a big spot of support on its own chart. And the four weeks that followed showed similar bounces in both markets. The pain for bulls last week was, similarly, felt in both markets.
But this week has shown a different tone as a higher-low has held in USD/JPY around 142.50 and for DXY, around the 98.98 Fibonacci level. As looked at in the USD post, there's now the possibility of a monthly doji and if that completes, there's turn potential for the US Dollar.
This would need to be supported by continued recovery in USD/JPY and for that, we're likely going to be looking for continued softening in longer-dated Japanese yields. Or else - as the divergence between Japanese and US rates continues to narrow, so too could the motivation for hedges and carry trades to close, putting downward pressure on the pair and the US Dollar.
In that scenario, I think USD/CAD and GBP/USD could remain as attractive venues for USD-weakness to play out. But in the opposite, with USD-strength showing, I'm still favoring EUR/USD for USD-strength to continue playing out. And also for the Yen, USD/JPY has been 'trappy' on both sides and I'd instead look to work with Yen-weakness against the British Pound (GBP/JPY) and Yen-strength against the Euro. - js
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.