Mr. Naoto Sakatani: "USD/JPY: What will the week starting from April 10 look like?"

Publication date: 2017/04/09 09:00

"USD/JPY: What will the week starting April 10 bring?"

Point: How to interpret Chairman Dudley's remarks from this past weekend.
If U.S. rate hikes and the Fed's balance sheet reduction could occur simultaneously,
U.S. interest rates would rise, for sure.


Note: On the 14th, markets around the world are closed for Easter,
and liquidity will thin.
It will be a holiday on Good Friday,
and Australia, New Zealand, Hong Kong, Singapore,
Germany, Switzerland, South Africa, the United Kingdom,
the United States (only the forex market will trade as usual), Canada, etc., are closed.

CME currency futures positions: as of April 4
(April 4) (March 28) (March 21)
Yen ▲45800 ▲53181▲66987
Euro ▲11405▲7923 ▲19662
Pound ▲99673 ▲10407 ▲107844

Chicago IMM: positions of short-term speculators and investors
Net yen position of short-term speculators and investors has further declined,
from a peak of 87,000 contracts, down by about 47%.

Chicago VIX: an index that measures the level of investor fear,
the VIX closed at 12.83 (+0.44).

We should pay attention to last weekend's remarks by Dudley, President of the New York Fed,
because if a rate hike and a balance-sheet reduction can occur simultaneously,
U.S. rates would certainly rise.
Therefore on the 7th, the U.S. 10-year yield

initially dropped below 2.30% due to U.S. actions in Syria in Tokyo time, and
as we entered New York time,
it fell to 2.27% on weaker-than-expected March U.S. payrolls,
but
concerns about the pace of rate hikes slowing receded after Dudley's remarks,
and if the Fed begins shrinking its balance sheet,
concerns that hikes cannot proceed and the cycle would lengthen also faded,


and it rose to 2.38% to recover the yield.
If the U.S. 10-year yield continues to rise as expected,
we expect USD/JPY to move higher again.

On the other hand,
1. Geopolitical risks rise with North Korea and Syria,
risk-off yen buying
2. In the U.S.-Japan Economic Dialogue on the 18th,
there are concerns that the U.S. will press Japan to correct the trade imbalance, raising concerns about a stronger yen
3. Concerns about President Trump's ability to implement his policies
and other dollar-negative catalysts also exist,
so which way the market moves remains to be seen,
we must wait for future developments,
there are no decisive reasons to assert either side at this time.

From last week's range, you can see the downside has been tested repeatedly.
April 3: 110.85 – 111.58

April 4: 110.26 – 110.93
April 5: 110.53 – 111.45
April 6: 110.28 – 111.14
April 7: 110.12 – 111.36

Technically, in the daily Ichimoku chart
Leading Span B is flat at 115.10,
Leading Span A is basically flat at 113.31
Baseline (Kijun-sen) is flat at 112.81
Turning line (Tenkan-sen) has fallen to 111.16
Current price line closes at 111.12 on the 7th.
This is the situation.

Technically, the time of sideways movement since March 22 has lengthened to 12 days.
We have not recovered the expected upside,
so a temporary downside search is expected,
if the price were to break to the 105–110 range,
we would likely watch for the November low of 101.18.


Initially, the rise from the June 24 last year low of 98.90 to the December 15 high of 118.66 was Wave 1,
the decline to the February 7 low of 111.59 from there as Wave 2,
as a corrective down move,
from the February 7 low of 111.59 to the March 10 high of 115.50,
and the movement to higher highs beyond that was expected to form Wave 3 up.




However, on March 23 the low of 110.62
broke below the February 7 low of 111.59,
and now there are two possible moves.

First scenario,
which seems more likely at this point,
as described above, the initial expectation that
the decline from the December 15 high of 118.66 to the February 7 low of 111.59 as Wave 2

is still extending,
that is the view.

The decline from the December 15 high of 118.66 contains a small basic wave,
a small primary wave
from the December 15 high of 118.66
to the February 7 low of 111.59 as Wave 1
the rise to the March 10 high of 115.50 as Wave 2
and the subsequent down Wave 3 continues,
the downside target in this case is,
N = 115.50 - (118.66 - 111.59) = 108.43
V = 111.59 - (115.50 - 111.59) = 107.68
E = 111.59 - (118.66 - 111.59) = 104.53
is.

Second view is,
in the decline from the above December 15 high of 118.66,
the small basic wave seen within the down move,
that is, Wave 3 down from the March 10 high of 115.50
ends at the March 27 low of 110.10,
thus the above "First scenario"
"Wave 3" has ended,
and from the March 27 low of 110.10 it would rise
to test a new wave.

In this case, the upside targets are,
E = 118.66 + (118.66 - 98.90) = 138.42
V = 118.66 + (118.66 - 110.10) = 127.22
N = 110.10 + (118.66 - 98.90) = 129.86
NT = 110.10 + (110.10 - 98.90) = 121.30
is.

Which of these two scenarios will occur is not yet clear at this stage.
The key is how the subsequent price action moves.
It depends on how the upside Tenkan-sen and Kijun-sen move,


and how time progresses,
which will reveal the outlook.

Upside targets are,
the recovery of the daily Ichimoku Tenkan-sen and Kijun-sen.
A breakout above the 115.00–115.50 price range.
Beyond that are the January 19 high at 115.60 and January 11 high at 116.87.


Downside targets are,
whether the daily Ichimoku Tenkan-sen breaks decisively,
and if a breakdown occurs, there could be a further pullback.
The April 7 low at 110.12,
the March 27 low at 110.10,
the November 9 of last year at 101.18,
the August 26 of last year at 100.05.

Given the expectation that 110 will be avoided,
the anticipated range is 110.00–113.00.