The FOMC results are as expected. August is the second crucible this year? [From Tetsu Emori's newsletter]
From the investment newsletter "Tetsu Emori's Real Trading Strategy" by Tetsu Emori, provided by GogoJungle, here is a small excerpt from this morning's dispatch.
〔CURRENCY MARKET〕
USD/JPY rose. After the FOMC, Powell signaled a cautious stance toward further rate cuts, leading to yen selling and dollar buying, pushing the pair into the upper 108s. The Fed announced a rate cut, the first in 10 years and 7 months. Amid growing uncertainty from trade frictions and a slowing global economy, the Fed enacted a 0.25 percentage point cut as a precaution to guard against worsening economic conditions. However, Powell did not explicitly commit to further easing at the press conference, leaving some doubt, and the yen briefly fell to around 109. Market interpretation that a new easing cycle is not guaranteed caused the bond yields to rise and U.S. stocks to fall, with the dollar being bought back. EUR/USD fell below 1.11, marking its lowest since May 2017.
【Currency Trading Strategy】
We will pass on USD/JPY. It rose to 109, but we would avoid buying here. It looks overextended, and August tends to be a strong period for yen appreciation. Even at current levels, there may be selling interest, but we will wait a bit longer to assess the situation. If small positions, a contrarian or short position could be interesting. In fact, cross yen pairs and other currencies are moving more, so centering trades there would offer more profit opportunities. USD/JPY is in a 107 to 109 range. Unless this range is decisively broken, it will be hard to take the next position. Any trading would be ultra-short term. Personally, I do not engage in such trades, so I would prefer to enter where large trends are more likely to emerge.
The FOMC results were as expected. Powell remains hawkish and clearly reluctant to cut rates further. Under these conditions, a rally in stocks or a stronger dollar with falling yields due to anticipated cuts is unlikely. The current market is assuming low interest rates as a given, so if that premise collapses, the situation could become very dangerous. The market seems overly optimistic or unprepared. Ultimately, signs such as bond defaults or bank failures could trigger turmoil in financial markets.
As repeated, USD/JPY tends to weaken in August. This trend is quite clear in historical data. The data also suggests that Japanese stocks are likely to fall sharply from August toward year-end. If you place importance on this data, your strategy will align accordingly. The yen futures position is nearly flat, not skewed, allowing movement in either direction. Because both sides can move, speculative players are in a position to trade easily. Once the momentum starts, it could move quite large. There seems to be a renewed potential for profit in USD/JPY after a long time.
August is seen as the second critical month of the year. May, August, and November have been the critical months this year; May already brought a steep stock decline. Next is August. Today marks the start of August. It would be prudent to proceed with extreme caution and monitor market dynamics. The finale will be in November, when US stocks are expected to face higher risk. Be mindful of the selling of risk assets. If yen strength becomes pronounced, there could be a downside move to as low as 96 yen by year-end.
Additionally, although not strongly supported by evidence, August could see earthquakes as well. I have a bad feeling about this.
I will change the currency pairs targeted for investment strategy. Emerging-market currencies are highly volatile, so I will exclude them. We will focus on major currency pairs. The targets are: JPY, EUR, GBP, AUD, NZD, and CAD. Right now, the Canadian dollar and the NZ dollar are the strongest currencies.
USD/JPY: None
EUR/USD: Short
GBP/USD: Short
AUD/USD: Short
NZD/USD: New position short
USD/CAD: Long
EUR/JPY: Short
GBP/JPY: Short
AUD/JPY: Short
NZD/JPY: Short
CAD/JPY: None
EUR/GBP: Long
EUR/AUD: New long
GBP/AUD: Short
EUR/NZD: None
GBP/NZD: Short
EUR/CAD: Short
GBP/CAD: Short
AUD/CAD: Short
NZD/CAD: None
“Tetsu Emori's Real Trading Strategy” (Tetsu Emori)As quoted.
The FOMC results were as expected, but the outlook for further rate cuts remains uncertain based on the chair's remarks. (Editorial staff)
