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JPY Strength Materializing as Global Equities Plummet

JPY Strength Materializing as Global Equities Plummet

Christopher Vecchio, CFA,

Talking Points:

- Our trade of the year, long JPY, is off to a solid start.

- Markets in major 'risk off' mood after Chinese PMI data

- See upcoming event risk for FX markets.

Happy New Year! That's where the good news ends. Markets don't seem to be enthralled by the calendar flipping over, as hope for a fresh start to the year has been quickly dampened by reality's gloomy emergence. The latest batch of PMI data from China has erased any goodwill from the market, as it's clear that the economy is still in the throes of the slowdown.

Despite the BOJ's and the ECB's best intentions, it's evident that the combination of a tightening Fed and a weak global growth backdrop will prove to create a difficult, volatile trading environment for at least the first few weeks of the year.

The Japanese Yen is emerging as the early winner of the volatile, discouraging growth environment leading into 2016, and the fundamental conditions backing a stronger Yen look fairly clear, in my opinion. With GBP/JPY continuing its break through the October 2013 trendline and AUD/JPY following through on its bearish rising wedge, our attention turns to USD/JPY - testing the trendline from the November 2012 low (when Abe/Kuroda appeared set to take power) - and NZD/JPY - breaking out of a multi-month triangle.

Read more: A Good Trader Always Seeks to Improve - Our Top Lessons of 2015

As capital is deployed in the first few days of the new year, it might be worth trading a bit lighter as markets normalize. It's important to understand and respect the trading environment you're operating in, and a review of risk management principles, "Traits of Successful Traders," should help those active the first few days of the year.

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.