June 17, 2019 08:21: Currency trading strategy [From Tetsu Emi's newsletter]
GogoJungle's newsletter by Tetsu Emori, "Tetsu Emori's Real Trading Strategy," is introduced with a small excerpt from this morning. This time, please look at the USD/JPY trading strategy.
〔CURRENCY MARKET〕 USD/JPY rose. Supported by solid U.S. retail sales, the market saw yen selling and dollar buying, pushing the pair into the mid-108s. May U.S. retail sales overall missed expectations slightly, but excluding volatile auto and auto parts dealers, sales exceeded expectations, and the April figure was revised sharply higher. This reduced excessive fears about the U.S. economy and led to yen selling and dollar buying. Also, May U.S. industrial production rose to its strongest since November last year, supporting dollar buying. However, with the FOMC approaching, there was a growing expectation to wait and see on policy decisions, leading to a narrow range and small moves afterwards. EUR/USD traded in the low 1.12s. While the majority expect the FOMC on the 18–19th not to cut rates, markets are watching whether hints of a rate cut could be given at the next meeting in July. There is also focus on whether the G20 Summit in Osaka on the 28–29th could resume trade talks between the U.S. and China. As of the 11th, speculative traders held a net short 4,5165 contracts in CME yen futures, up from 44,389 the previous week. Long positions fell by 6,651 to 20,786; short positions fell by 5,875 to 65,951. Yen selling is strengthening again. The euro saw a net buy of 759 contracts, with 86,792 contracts net short. The pound saw a net buy of 2,961 contracts, with 44,801 contracts net short.
【Currency Trading Strategy】 We will omit details on USD/JPY. It has been range-bound. We expect significant moves from upcoming two weeks of events. We want to capture the initial move effectively. Frankly, there is little room for movement in the mid-108s. However, technical points are gradually turning lower. A break above 108.90 could add momentum to the upside. We will watch that. The key near-term question is whether Powell can hint at a July rate cut at the FOMC; without that, market disappointment could be substantial. If there is a hint to adjust the FF rate lower than expected, that would suffice. Going forward, Japan’s political situation and the G20 Summit will be important. It is crucial to watch for any deal possibilities between the U.S. and China at their summit. There could be a surprise temporary agreement on the surface, which could lead to a rapid rise in stocks and a depreciation of the yen. For now, there is no such expectation, so unexpected events could occur. Domestic politics look like the main event on the 19th, with the party leader debate seeming like the climax of the current Diet session; if a House of Representatives dissolution and double elections were added, it would be significant. Diplomacy and domestic affairs. The next two weeks are full of these factors, potentially historical. This is the most optimistic scenario. However, even then, the time frame is likely until the end of July. This year, August could be a difficult month. In the IMM currency futures market, the dollar long against G10 currencies decreased to $32.114 billion, but remains high. In other words, there remains substantial room for dollar selling. On the other hand, the dollar is short against emerging market currencies by $3.269 billion, a slight decrease but still a short position against EM currencies. This buyback may come in the future. If so, we must consider the risk of outflows from EMs, which would be risk-off and could lead to a broader yen appreciation. Ultimately, cross yen tends to weaken, meaning yen appreciation is likely. As long as the stock market remains in a bullish trend, this move may be limited, but from August onward, yen appreciation could become very strong.
The long-term trend for USD/JPY is 110.35 yen.
EUR/JPY will be shorted on new positions. The long-term trend is 126.10 yen.
EUR/USD will be shorted on new positions. The long-term trend is 1.1430 dollars.
EUR/GBP is to be kept on hold. The long-term trend is 0.8760.GBP/JPY will be shorted on new positions. The long-term trend is 143.90 yen.
GBP/USD will be shorted on new positions. The long-term trend is 1.3045 dollars.AUD/JPY will maintain a short position. The long-term trend is 82.90 yen.
AUD/USD will maintain a short position. The long-term trend is 0.7540 dollars.ZAR/JPY will maintain a long position. The long-term trend is 8.2080 yen.
USD/ZAR will maintain a long position. The long-term trend is 13.4685 rand.TRY/JPY will be shorted on new positions. The long-term trend is 27.44 yen.
USD/TRY will maintain a long position. The long-term trend is 4.1975 lira.NZD/USD will maintain a short position. The long-term trend is 0.7015 dollars.
USD/CAD will be long on new positions. The long-term trend is 1.3045 Canadian dollars.
USD/MXN will maintain a short position. The long-term trend is 19.1115 pesos.Emerging market currencies are highly volatile, so position sizes should be kept to no more than a quarter of major currencies. Also, there is no need to force positions.
“Tetsu Emori's Real Trading Strategy” (Tetsu Emori)—quoted.
From this week through the end of the month, important events such as the FOMC and the G20 Summit are on the calendar. There is a possibility that unexpected materials may emerge, so caution is advised. (Editorial staff)
