USD/JPY: Cautious of getting carried away – OCBC
|USD/JPY took another leg lower after US payrolls disappointed while renewed geopolitical concerns is another trigger for safe-haven proxy Japanese Yeb (JPY), OCBC FX strategists Frances Cheung and Christopher Wong note.
USD/JPY set to be a case of sell-on-rallies
“Broader direction of travel for USDJPY has now changed as Fed-BoJ policies shift from divergence to convergence. We also noted how the recent decline in USD/JPY saw a recoupling of the FX to UST-JGB yield differentials. Back during May – Jul, USD/JPY had earlier traded much higher while UST yields and UST-JGB yield differentials went the other way lower.”
“And if we do expect USD/JPY to play catchup to its historical correlation with UST-JGB yield differentials, then there is room for USD/JPY to trade lower. Based on where 2y yield differentials is, our simple univariate fair value model estimates put USDJPY theoretical value at closer to 136. The large misalignment merely suggests that is room for USD/JPY to head lower over time. Pair was last at 145.15 levels.”
“While the broad bias is for further downside, we are cautious not to get overly carried away in the short term. There is risk of retracement from current levels. Resistance at 148.54, 145 and 144.50 levels. (38.2% fibo retracement of 2024 low to high). Bias to sell rallies. Intra-day, we watch US ISM services data tonight.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.