First off, a fast be aware about my Q2 high commerce, which was quick GBP/USD, searching for 1.2750-1.2800 from circa 1.3200. The rationale behind this view was that market pricing of financial tightening was far too aggressive relative to a reluctant hiker within the Bank of England. As it stands, GBP/USD is on track to submit its worst quarterly efficiency because the 2016 Brexit vote, having additionally dipped beneath the psychological 1.20 degree. There is an argument to be made that I used to be not formidable sufficient in my goal.
Looking forward to Q3, I’m of a bullish nature on the Japanese Yen. Two components why: US bond yields and commodities, specifically oil costs, are each off their highs. These have been the important thing explanation why the Japanese Yen has been among the many worst-performing currencies this yr. Now that these two components are correcting, so can the Japanese Yen because the charts beneath spotlight.
USD/JPY (Black) vs US 10Y YieldUSD/JPY (Black) vs Brent Crude Oil
Source: Refinitiv
My view on USD/JPY is for 130 earlier than 140, though a reassessment of this view could be obligatory if bond yields and oil costs return to their highs. The threat after all with USD/JPY is the truth that the Bank of Japan (BoJ) stay the financial coverage outlier. The BoJ has doubled down on yield curve management after buying a report quantity of bonds in every week, whereas central banks in the remainder of the world are tightening financial coverage aggressively. Whatβs extra, the BoJβs actions are regardless of Japanese officers doubting the deserves of an especially weak foreign money.
Levels to Watch
Downside: 131.50 (BoJ response low), 130.00 (psychological degree/spherical quantity), 126.36 (May2022 lows)
Topside: 135.00-20 (2002 peak), 136.71 (2022 peak)
Bias: Lower USD/JPY from 1.3600, eyeing a transfer in direction of 131.55, the view could be unsuitable ought to oil and yields return to highs and USD/JPY breaks 138.00 and if oil and yields return to the highs.
USD/JPY Chart: Daily Time Frame
Source: Refinitiv
Elsewhere, the current slew of soppy survey knowledge within the type of US and Eurozone PMIs have prompted markets to improve the likelihood of a recession, extra so in Europe. Moreover, ought to exercise knowledge present a marked drop-off an aggressive re-pricing of recession dangers is probably going to push cross-JPY, which is an effective hedge in such an atmosphere. This could be significantly evident throughout commodity cross-JPY reminiscent of AUD/JPY, which has room for a sub 90.00 transfer.
AUD/JPY
Source: Refinitiv
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