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Don’t Sleep on the Japanese Yen - Big Things on the Horizon

Don’t Sleep on the Japanese Yen - Big Things on the Horizon

David Rodriguez, Head of Product
Don’t Sleep on the Japanese Yen - Big Things on the Horizon

Don’t Sleep on the Japanese Yen - Big Things on the Horizon

Fundamental Forecast for Pound: Neutral

See a full rundown via a brief video on YouTube

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The Japanese Yen surged versus all major counterparts as the US S&P 500 saw its worst weekly decline in over two years. There’s little economic event risk out of Japan in the week ahead, but we think big things stand on the horizon for JPY pairs.

Traders pushed the Japanese Yen to fresh multi-year lows versus the US Dollar as broader financial markets soared, but a clear flight to safety warns that the JPY may soon regain favor. Typically we would favor the traditional safe-haven in the US Dollar through times of market turmoil. Yet the clear fact is that speculators remain extremely short the Yen and long the dollar (long USDJPY). This in turn suggests that the Greenback could actually do poorly if we see further stock market tumbles and a broader deleveraging across leveraged assets.

A virtually empty Japanese economic calendar in the week ahead suggests that few expect major JPY moves. Our Senior Technical Strategist nonetheless warns that the USDJPY may be nearing a significant breakdown. And indeed we say this: don’t fall asleep on the Yen. It could very well be that this is a minor S&P 500 correction within a much larger bull trend. Yet we can’t rule out a larger pullback, and we believe the JPY could surge if this is indeed the start of a larger market correction. - DR

--- Written by David Rodriguez, Quantitative Strategist for David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.

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