Japanese stocks tend to be prone to gains this month, with a possibility of yen depreciation toward the end of the month. On the other hand, the tendency after August is more likely to decline, and there is a higher risk of yen appreciation.
One small excerpt from the investment e-newsletter “Tetsu Emori’s Real Trading Strategy” by Tetsu Emori, provided by GogoJungle, from this morning’s dispatch. This time, please take a look at the dollar-yen trading strategy.
〔CURRENCY MARKET〕
The dollar-yen pair moved little. With the retreat of yen buying and dollar selling driven by expectations of rate cuts in the US and Europe having run their course, it traded in the upper 107s. In addition, President Trump indicated his intention to nominate economists who advocate rate cuts for the vacant Fed board seat, and IMF Executive Director Lagarde, who is seen as dovish, was decided as the next ECB President, causing a temporary drop to the mid-107s.
On the other hand, the ADP national employment report, considered a leading indicator of U.S. employment, showed private payroll growth in June at +102,000, below market expectations of +140,000. The ISM Non-Manufacturing PMI for June also registered a low level comparable to July 2017, and these served as dollar-negative catalysts. However, with Independence Day holidays on July 4-5, and with the U.S. jobs report due on the 5th, position adjustments dominated afterward. Euro/dollar traded in the high 1.12s. The pound continued to decline against the dollar.
【Currency Trading Strategy】
We will maintain long positions in USD/JPY. Today is Independence Day in the U.S., so movement may be subdued. It is difficult to push higher unless it surpasses 108. We’ll keep watching a little longer. Attention should also be paid to stock price trends. Depending on the results of the U.S. employment data on the 5th, there could be a significant impact on July FOMC decisions. The market has priced in rate cuts, but we would like to confirm via Powell’s congressional testimony next week whether actually to expect rate cuts.
Meanwhile, Japanese stocks tend to rise this month, so there is a possibility of a temporary yen weakness toward the month-end. However, after August, there is a tendency for declines, so yen strength risk could rise. Even if there is a rise within the month, I think it should be treated as a short-term move. After a rise, the next step would be to look for a short opportunity.
Sentiment indicators such as the Bank of Japan Tankan survey, ISM manufacturing index, and manufacturing PMI are weak. Today’s ISM Non-manufacturing PMI also showed weak results. If employment, which has been pulling the U.S. economy, deteriorates, the market's view of the economy could gradually change. In that case, the market would push for rate cuts, but such cuts may not be preventive. The U.S. economy is said to be in the 11th year of an expansion, but a collapse is not implausible. Economic expansion will end eventually. Lower interest rates are supporting the economy and stock prices, but excessive bond investment will eventually unwind, raising interest rates and causing stock prices to fall and yen to strengthen. It may be prudent to limit optimism to July for now. In particular, after the House of Councillors election is over on the 21st, we should watch Japanese stock movements closely.
Euro-yen will remain short.
EUR/USD will remain short.
EUR/GBP will remain long.GBP/JPY will remain short.
GBP/USD will remain short.AUD/JPY will remain long.
AUD/USD will remain long.ZAR/JPY will remain long.
USD/ZAR will remain short.TRY/JPY will remain long.
USD/TRY will remain short.NZD/USD will remain long.
USD/CAD will remain short.
USD/MXN will unwind the long and establish a new short position.Emerging market currencies are highly volatile, so keep position sizes at no more than a quarter of those of major currencies. Also, there is no need to force positions.
‘Tetsu Emori’s Real Trading Strategy’ (Tetsu Emori)—quoted.
Around the world, easy-money policies are intensifying. First, it will be important to monitor the results of tomorrow’s U.S. employment report and analyze whether the United States will truly implement rate cuts. (Editorial staff)
