Currency markets began the week in solid and horrible neutral positions as trading ranges expanded. The outlier to neutral is severely overbought JPY cross pairs and overbought across all JPY pairs. Top 4 currencies in order: GBP/JPY, EUR/JPY, CAD/JPY and NZD/JPY. No thrills exist to AUD/JPY.
The question to Japanese intervention is JPY/USD 22,301.95 equates to 151.00 USD/JPY but the Ministry of Finance spent 2 billion Yen or $13 million to intervene at 146.00. Past intervention costs in the 1990s began at 100 million Yen or roughly $600,000 in today’s rates, but USD/JPY was 87.00’s and 90.00’s then, so much lower to cost.
As the USD/JPY price travels higher, the cost of intervention rises. Any cost to possible intervention on Friday won’t be known until the monthly release by the Ministry of Finance. I submit no intervention existed Friday, and the 146.00 intervention was a one-off.
The problem is not USD/JPY, but JPY/USD is becoming too low in relation to Japanese Call rates. The Japanese may be forced to raise Call Rates if DXY travels higher against continued Fed Raises.
The suitable time to intervene was when USD/JPY traded at 120.00s while DXY broke above the five-year average at 95.00’s. The DXY break may have caused the USD/JPY trajectory to travel lower; however, USD/JPY and DXY are the same pairs, so the DXY break higher forced USD/JPY higher.
The Week Ahead
Trade Rankings: USD/JPY, AUD/USD, NZD/USD, USD/CAD. JPY Cross Pairs= EUR/JPY, NZD/JPY, CAD/JPY, EUR/AUD, EUR/CAD, EUR/NZD, EUR/USD.
We’re cautious and avoiding CHF Cross Pairs, GBP/CHF, GBP/NZD, GBP/CAD and not thrilled to EUR/CAD unless a resolution to 1.3389.
Total 3 GBP pairs earn rankings as GBPUSD, GBP/JPY, GBP/AUD. Overall, EUR//AUD and EUR/NZD are better paired to trade.
USD and non-USD are prime movers this week to cross pairs.
DXY faces headwinds at 112.02 and 112.81, and only then does DXY target 114.00’s. A break of 111.25 targets easily 109.00’a. DXY targets are 57 pips and every 42 pips for EUR/USD. DXY 117.00’s drops from contention to long-term forecasts.
Figure DXY, and you’ll have markets licked. EUR/USD big break for higher is located at 0.9993, and the first target is easily 1.0057. USD/JPY’s next target and big break are found at 148.40, ranging from 145.35 to 148.40.
GBP/USD end-of-week target is at 1.1159 and EUR/USD at 0.9675 provided 0.9789 break lower.