Hedge funds and long-term investors are re-entering the market, hoping that the yen will rebound before possible currency talks between the United States and Japan this week.
Japanese Finance Minister Katsunobu Kato said on May 16 that he will seek an opportunity to hold currency talks with the US government of President Donald Trump this week, as market speculation suggests that the Trump administration is willing to accept a depreciation of the US dollar.
Several Asian currencies, including the Japanese yen, rose last week, influenced by news that the United States and South Korea discussed currency issues during trade talks earlier this month.
Anthony Foster, head of G10 spot trading at Nomura International in London, said: “We are seeing both hedge funds and long-term investors selling the dollar against the yen and other yen crosses.” “Market speculation that Japan may also face pressure to appreciate its currency has prompted yen buyers to return to the market.”
In the latest semi-annual foreign exchange report of the US Treasury Department, both Japan and South Korea were placed on its list of countries whose foreign exchange behaviors are under surveillance.
In early Asian trading on Monday, the dollar fell 0.6% against the yen to 144.81, driven by news from Friday that Moody’s Ratings had downgraded the US government’s credit rating from Aaa to Aa1, citing concerns over the expansion of the US budget deficit and rising debt.
Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that as of the week ending May 13, leveraged funds’ long positions in the Japanese yen reached 24,741 contracts, the highest level since September 2019. On May 12, the USD/JPY exchange rate soared to a more than five-week high of 148.65, but this seemingly provided some funds with an opportunity to sell the currency pair at a favorable level.
Ivan Stamenovic, the head of G-10 foreign exchange trading for Bank of America in Hong Kong for the Asia-Pacific region, said, “The rebound above 148.0 makes establishing new short positions in the USD/JPY more attractive.”
Nomura also found that the currency options market was very interested in transactions where the value would rise when the yen strengthened. Sagar Sambhreni, a senior foreign exchange options trader at Nomura in London, said that “implied volatility in the foreign exchange market had dropped to levels seen before the liberation of Korea at the beginning of last week, and our clients who targeted the yen strengthening structure took the opportunity to buy in large quantities.”
The risk reversal indicator for the USD/JPY (comparing the prices of call and put options) shows that the price of hedging downside risk for the currency pair rose relative to the price of hedging upside risk last week, as put option bets increased. The value of put options rises as the currency pair falls, while the value of call options rises as the currency pair rises.
Chen Delong, the Asia-Pacific foreign exchange and macro strategist at UBS Global Wealth Management’s Chief Investment Office, said that the risk reversals for the USD/JPY indicate that demand for put options on the USD/JPY has increased in recent days, which might be due to South Korea’s comments on currency discussions with the United States.
Technical analysis:
Gold: Last Friday, we clearly reminded in our article and plugin to pay attention to the key Fibonacci levels of the previous uptrend and actively prepare for long positions. The two yellow opportunities in our plugin – buy stops placed after a break and then a rebound – performed well. One green direct buy opportunity failed. However, the overall win rate and profit-to-loss ratio were both excellent. Intraday, we will focus on the performance of the new demand zone near 3200 and then choose the right time to buy; at the same time, for higher positions, we must wait until 3240/60 is recaptured before attempting. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
The Nasdaq: The strength of the price reaching new highs has been decreasing. If the rebound strength after the expansion also starts to decline, then we need to be cautious about the risk of a recent pullback. For the day, it is recommended to pay attention to the rebound test effect in the 21300-21500 area. If it fails to recover strongly, we will start to look for new supply zone short signals. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Crude oil: We clearly reminded of the blue momentum break signal in the plug-in and article last Friday, and explicitly suggested to place a buy limit order in the blue area after touching 61.70. This move has already achieved a very clear effect. Continue to maintain the buy strategy of break and pullback in the future. The key price break signal needs to be above 62.00/30. For detailed positions, please consult the plug-in.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
17:00 Eurozone April consumer price index final reading
20:45 New York Fed President Williams delivers a speech.
At 20:45, Vice Chair of the Federal Reserve Jefferson will deliver a speech.
22:00 US Conference Board Leading Index for April
