Rate cut by the Fed is priced in. Exercise caution regarding the risk of yen appreciation in August!
From the investment e-newsletter “Tetsu Emori’s Real Trading Strategy” by Tetsu Emori provided by GogoJungle, here is a small excerpt from this morning’s message. This time, please take a look at the dollar-yen trading strategy.
〔CURRENCY MARKET〕
The dollar/yen declined slightly. Overseas markets’ dollar selling, prompted by rising expectations of U.S. rate cuts, has run its course. On the previous day, Federal Reserve Chair Jerome Powell strongly hinted at the possibility of a rate cut at the July FOMC, and the minutes of the June FOMC showed that participants were already looking toward early rate cuts. As a result, dollar selling intensified and the dollar/yen fell to as low as 107.85 yen. However, with a rebound in U.S. long-term yields, there was buying back of the dollar. After June U.S. CPI and initial jobless claims both came in better than market expectations, the trend of buying dollars and selling yen accelerated. Powell’s testimony before the Senate Banking Committee on the 11th again suggested a rate cut by the end of this month, but this seems to have already been priced in. The euro/dollar traded in the mid-1.22s. The pound/dollar rose slightly. However, concerns about the U.K. economy and the approaching Brexit deadline are keeping upside limited.
【Currency Trading Strategy】
We will maintain long positions in the dollar/yen. However, I feel we are near the upper end. It may be prudent to close out some positions for profit. At least about half of the positions should be taken profit. Powell’s congressional testimony is already priced in. It is unlikely that the dollar will fall sharply on this alone, but going forward, attention should be paid to stock price movements. In the near term, it looks like 109 yen may be the ceiling. If it falls below 108.50, downside risk will gradually rise. If it breaks below 108, further downside testing will occur. If it breaks below 107.50, the overall trend would turn downward. Considering U.S. rate cuts and the Bank of Japan’s policy paralysis, it seems quite difficult for the yen to strengthen in the current market. The stock market is also showing growing caution. U.S. stocks have risen too much. If a correction occurs, it could trigger a risk-off move and yen buying as a safe asset. Japanese stocks also appear to be approaching a correction, so be wary.
The market appears to be clearly neglecting the risk of current low volatility. If a move is made during such times, it could be severe. We should be in very cautious positions now. This applies not only to currency positions but to all asset classes. If asset sales advance, the yen could strengthen. It is crucial to be prepared for such movements. I have been stating since the beginning of the year that August and November will be important. With August approaching, you should not let your guard down. Extreme caution is required for the risk of yen strengthening in August. There is a possibility of the dollar falling to as low as 96 yen toward the year-end. Keep this in mind as well.
The euro/yen will remain long.
The euro/dollar will remain long.
The euro/pound will remain long.The pound/yen will remain short.
The pound/dollar will remain short.The Australian dollar/yen will remain short.
The AUD/USD will remain short.The South African rand/yen will be long.
The USD/ZAR will remain short.The Turkish lira/yen is on hold.
The USD/Turkish lira is on hold.The NZ dollar/USD will remain short.
The USD/CAD will remain short.
The USD/Mexican peso will remain long.Emerging market currencies are volatile, so keep position sizes to no more than a quarter of those in major currencies. Also, there is no need to force a position.
“Tetsu Emori’s Real Trading Strategy” (Tetsu Emori)quote.
Emori-san notes that it is important to consider the risk of yen appreciation in the future. It seems Powell has hinted at rate cuts, but the market appears to have limited movement. We don’t know when stock prices will adjust, but preparation seems necessary. (Editorial)
