USD/JPY – A Pair You Can Learn From

We’ve discussed how important this pair is with respect to it’s “drive in equity markets” ( with JPY being sold/borrowed then converted to USD in order to purchase equities ) and it’s interesting to note that:

Regardless of whatever fluctuations we’ve now seen around Yellen’s “slightly more hawkish” comments….USD/JPY refuses to break higher thru the downward sloping trend line that has contained it for so long.

What would appear as “USD strength across the board” really only manifests as a couple pips rise in USD/JPY.

This is because strength in JPY is even GREATER. With both currencies taking inflows only JPY taking MORE creating a net result of USD/JPY falling “lower”.

This may appear counter intuitive as one might imagine “well USD is going higher….this pair should also be going higher right?” WRONG.

Understanding the fundamentals behind this pairs movement can tell you a lot about market’s appetite for risk as “USD will be converted BACK to YEN as U.S equities are sold.

A stronger Yen correlates to “weaker U.S Equities” near 95%.

Something to add to your toolbox if  it’s not already in there.

I’m adding short USD/JPY here at 101.63

5 Responses

  1. Joe July 15, 2014 / 12:36 pm

    Hey Kong, what do you think of AUDUSD and CADUSD, they’ve been so resilient compared to EURUSD

    • Forex Kong July 15, 2014 / 1:02 pm

      I see it like this…..

      Consider AUD as well NZD ( even CAD to a lesser degree ) as the MOMO’s movers in Forex….like TWTR and FB in this case as…..

      The carry offered with the reasonable interest rates of AUD and NZD make them appealing obviously….BUT – the low liquidity ( as these are commod related and NOT safe haven related currencies ) have them drop like rocks when risk comes off. And I mean…DROP LIKE ROCKS.

      I see it as……they are currently the “last to go” as with SP 500 / U.S Equities so…..

      I’ve been hanging short AUD for what seems like forever….but with little consequence as it’s not moved more than 1/100 of a cent in months!

      When they go…..they are really gonna fall and you’ll want to be “in it to win it”.

    • Forex Kong July 15, 2014 / 1:04 pm

      AUD and NZD and EUR have completley different fundamental underpinnings so…..you can’t look at them as “equal vs USD”.

      EUR is second largest held reserve currency so trades almost exactly “inverse” USD as money shifts back n fourth.

      AUD and NZD represent “risk” and trade more like MOMO stocks…..big moves / low liquidity in comparison.

  2. Joe July 15, 2014 / 1:35 pm

    Thanks Kong. Need some serious volatility in FX world, IMO. USD can’t seem to catch a real bid until something blows up. Otherwise the momo trade as you put is keep on buying the AUD, CAD and sell EUR.

    • Forex Kong July 15, 2014 / 3:21 pm

      It’s been the longest / flatest grind of my entire career so yes – volatility has been killed.

      When it picks up though ( very soon ) she’s gonna be something to see indeed!

      You won’t want to miss it ( as I’ve been positioning for it a considerable time now ) as….it’s likely gonna come fast and hard.

      What for USD /JPY to fall through support around 101.20 area….and then see YEN strngth across the board / risk off.

      AUD and NZD weakness will follow.

Leave a Reply to Joe Cancel reply