Is USDJPY Ripe for a Selloff?

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Market Drivers April 8, 2019
Yen strongest at the start of the week
US 10 year below 2.5%
Nikkei -0.021% Dax n/a
Oil $63/bbl
Gold $1296/oz.

Europe and Asia:
No data

North America:
No data

It’s been a very quiet start to the week in FX in what is likely lt be a quiet week overall with very little data on the docket.

The yen was the strongest G-10 currency of the night with USDJPY falling through the 111.50 support to hit a low of 111.34 in Asian dealing. The move was triggered by some weakness in Chinese equities which saw a reversal in Shanghai index as it turned red for the day.

Friday’s US Non-Farm Payrolls failed to provide any spark for risk or for the dollar as the decent print in jobs was offset by the very tepid gain in wages. The 0.01% rise in wages was hardly a signal of an overheating economy and indeed may be a sign that the overall demand is slowing. Indeed the combination of weaker than expected wages growth and the surprising decline in core US Retail Sales last week indicates that the much vaunted 2nd half rebound in US GDP is unlikely to occur. US growth is now projected to rise at 2.2% in Q2 of this year which will keep Fed neutral for the foreseeable future and cap any dollar gains for the time being. Today’s action in benchmark 10 year US yields which are now below the key 2.5% level reflects the general sentiment that growth will be a challenge going forward.

USDJPY, which failed to take out the 112.00 figure in Friday’s trade remains vulnerable to further profit taking this week. The pair has been in a slow and steady rise for the past week and a half buoyed by risk on flows, but has failed to get any support from US data or US yields during that time, so now any drift lower in equities could quickly send the pair tumbling towards 111.00 and perhaps even the key 110.00 support if US equity markets begin to wobble. For now, it ’s holding its own below above 111.25 but any selloff in US stock could quickly send it lower as the day proceeds.

Boris Schlossberg
Managing Director

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