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5 Feb 2013
Forex Flash: Time to sell USD/JPY? - TDS
The typical seasonal pattern of trade in USD/JPY suggests has delivered as one would expect if history is of any indication, says TD Securities Chief FX Strategist Shaun Osborne, who points that "the last two months of the calendar year and the first of the new one usually deliver the best period of gains for the USD over the entire 12 month period."
"If the usual seasonal trends are respected moving forward, however, the typical pattern of trade turns much less supportive for the USD through to the end of H1, our studies suggest" he adds.
At present, Shaun is troubled by two elements detected, which may potentially help derail the smooth sailing by USD buyers, "even if there is nothing in the price action currently to suggest that the USD rally has peaked" he says.
According to Shaun, first, "a persistent three month move in one direction is usually the sort of move that cries out for a correction in the developed market space."
Secondly, Shaun states: "Speculative accounts have already accumulated a big short JPY position; the latest IMM data showed a net speculative short position of 71.2k contracts. The scale of the position is still beyond the peak net short JPY positions that accumulated in 2010, 2011 and earlier in 2012. Note that these positioning extremes were coincident with significant JPY short squeezes subsequently, resulting in an average (approximately) 9 yen drop in USD/JPY."
Mr. Osborne adds: "We have been targeting a move up to 92.50/55 from a technical point of view since December’s break higher and, with the target met, we rather think that current levels represent an attractive opportunity to sell into even if there is a modest overshoot to the topside. Japanese exporters will be happy to lock in a near 10 yen premium over break even rates (at least in the 80/82 range considering last year’s exporter break even estimate of 82.30)."
"If the usual seasonal trends are respected moving forward, however, the typical pattern of trade turns much less supportive for the USD through to the end of H1, our studies suggest" he adds.
At present, Shaun is troubled by two elements detected, which may potentially help derail the smooth sailing by USD buyers, "even if there is nothing in the price action currently to suggest that the USD rally has peaked" he says.
According to Shaun, first, "a persistent three month move in one direction is usually the sort of move that cries out for a correction in the developed market space."
Secondly, Shaun states: "Speculative accounts have already accumulated a big short JPY position; the latest IMM data showed a net speculative short position of 71.2k contracts. The scale of the position is still beyond the peak net short JPY positions that accumulated in 2010, 2011 and earlier in 2012. Note that these positioning extremes were coincident with significant JPY short squeezes subsequently, resulting in an average (approximately) 9 yen drop in USD/JPY."
Mr. Osborne adds: "We have been targeting a move up to 92.50/55 from a technical point of view since December’s break higher and, with the target met, we rather think that current levels represent an attractive opportunity to sell into even if there is a modest overshoot to the topside. Japanese exporters will be happy to lock in a near 10 yen premium over break even rates (at least in the 80/82 range considering last year’s exporter break even estimate of 82.30)."