Can the JPY Strengthen Now?
Can the JPY Strengthen Now?
The JPY has been the weakest currency of the year. Check it out here on the currency strength monitor from Financial Source.
It wasn’t the BoJ board that helped strengthen the JPY as they had been reluctant to act at the last BoJ meeting preferring to not intervene in FX markets. There is wisdom in that decision since it is very hard to manipulate currencies and many nations have failed in the past like the RBNZ and the SNB.
Instead, the weakness in the JPY looks like it has been been finally limited by a recovery in the debt market. US 10 year yields have moved lower on fears over. Coming US recession. The US10-02 yield inverted around the end of March this year and the Fed is hiking rates just as growth is starting to show. This has been the drag on the USDJPY strengthening the JPY.
So, is this the catalyst for some correction in the heavily over-sold JPY? The technical picture would favour selling on a re-test back up to the broken trendline in the 129.50 and 130.00 region. The key to this level holding will be a further move lower/pressure for US 10 year yields to move lower. The more likely the US is seen as heading into a recession the lower the US 10-year yields should fall as the longer end of the curve tends to respond more to growth expectations.
If recessionary fears fade, then the longer end of the curve should steepen again and that could mitigate some of the strength in the JPY.
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
20220516
