The Yen trades higher – Societe Generale

The unwinding of short positions in the Japanese Yen (JPY) continues apace, notes Kit Juckes, FX strategist at Societe Generale.

Further decline in USD/JPY is unlikely to be sustainable

“In the three weeks since it peaked, it has gained 6% against the USD, 8% against the AUD, 9% against the MXN and BRL, and 11% against the NOK. Were there huge NOK/JPY long trades that I didn’t know about? Yen call option sales, to fund put option purchases, was one trade that benefited from (and helped drive) low volatility and a slow rise in USD/JPY.”

“Such trades cannot survive a sudden spike in volatility, let alone an assessment of the future of the trade as Fed easing approaches, the US yield curve rapidly uninverts, and BoJ rate hikes loom. So far, the momentum of the move (at least as measured by the RSIs) is similar to that of late 2022 and late 2023.”

“As such, a further decline in USD/JPY at the current rate is unlikely to be sustainable. A slower move lower, on the other hand, would confirm that this is indeed more than just a ‘wind-clearing’ of speculative positions.”

Source: Fx Street

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