Intraday Market Thoughts

Archived IMT (2011.03.17)

by Ashraf Laidi
Mar 17, 2011 2:04

As USDJPY hit a new record low of 77.03 in early Thursday Asian trade, much talk arises about the repatriation trade le by Japanese investors. As I often indicated during last autumns lows, USDJPY has a highly positive (NOT INVERSE) correlation with bond yields, thereby, tends to drive down USDJPY (rising yen) during falling yields (resulting from fresh QE, weak US/global economic figures and concerns with disinflation). And of course, bond yields also fall as bond prices rally on days like these (tumbling equities casting doubt on the global recovery). Aware of Japanese investors chase for yield, FX traders trend to anticipate the repatriation operations (unwinding of yen carry trade) via speculative purchases of the Japanese currency and further enforcing it upwards. I expect the release of Japan's industrial production, consumer demand and GDP growth data due in 1-2 months to act as the catalyst for eventual yen weakness, which will likely drive USDJPY about 3-5% from current levels (85-86) but unlikely go beyond that. PROSPECTS OF COORDINATED INTERVENTION stronger than ever now as markets approach "Worse Case Scenario" territory. This means the whipsaws breaking the shorts are more than likely, as was seen in 2007 and 2008. Seasonal yen weakness in April occurring after the conclusion of pre-fiscal year end repatriation is also likely to weigh on JPY in Q2. Buying USDJPY near the latest all-time lows may be produce a quick 70-100 pips, but maintaining a consistent success in such a volatile markets in the face of interventions, rumours and disasters could be dangerous, especially in a world of 50 or 100-1 leverage. If we saw 77, we may as well as 75 and 73 but chances of intervention shall grow stronger.

----- REMEMBER the relative consistency and reliability of EURUSD support near 1.3860-70s to rebound towards 1.3920-30s as the pair maintains its robustness in light of the dynamics I mentioned in the latest article.


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