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Reflections #39 - USDJPY climbs to highest levels since Nov22, we remain bearish

USDJPY rose to 143.94 today amidst a pick-up in verbal interventions from authorities that "the recent FX move is rapid and excessive" (Masato Kanda) and no options are ruled out.

The market seems to downplay the risk of intervention for now, as the comments only suggest some nervousness but not a "high alert" or imminent intervention. Indeed, there may be factors which suggest that the situation is not as extreme as it were in 2022 and the continued divergence in monetary policy points to a rising carry in favor of the USD.


However, we do not recommend to chase the rally here and remain tactically bearish.

First, we are approaching the 145 level which was signalled as a level where intervention becomes a significant risk.

Second, USDJPY remains rich according to our cross-asset model which suggests a fair value around 135-137.



Third, positioning has become extreme amongst speculators as signalled by CFTC. Large and small speculators are at the extremes of short JPY positions over the last 5 years.

Fourth, momentum indicators are flashing red for USDJPY across RSI, CCI and Fast stochastics, suggesting a very overbought situation.


Bottom line, we recommend to not chase the rally and are tactically bearish for a move towards 135-137.





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