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The Risk and Opportunity In Evaluating USDJPY, Yen Crosses Next Move

The Risk and Opportunity In Evaluating USDJPY, Yen Crosses Next Move

John Kicklighter,

Talking Points:

  • USDJPY is 10 percent off the 13-year high set this past May, yet is above the mid-point of the past 20 year range
  • Upside pressures are less motivated by monetary policy skew than speculative capitulation on heavy short interest
  • For downside pressure, the threat of broad risk deleveraging would expose very expensive carry in the Yen crosses

See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.

It is important to always consider the scenarios that could work against a trade you intend to take. It's also good practice to regularly re-visit current to trades to ensure they are still the positions you intended to take in the first place with convincing risk-reward. Recently, the case for a USDJPY rally has gained better fundamental and technical traction. So, I wanted to review my medium-to-long term bearish case. For the bullish view on USDJPY and Yen crosses, the relative monetary policy case offers limited foothold. More convincing are the possibility of a speculative capitulation on long Yen exposure and perhaps global divestment from Japanese assets. However, weighed against the bear case of full-scale and broad risk aversion; the probability-potential mix still suit my time frame. I run down my evaluation of the most convincing technical and fundamental factors in both the bullish and bearish scenarios for USDJPY (and other Yen crosses) in today's Strategy Video.

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