– Japanese Yen has remained resilient despite ‘risk on’ nature of markets past few days.
– British Pound under pressure as Brexit headlines reappear.
– FX volatility set to remain high with FOMC and Brexit vote next two weeks – it’s the right time to review risk management principles to protect your capital.
After the Bank of Japan, Federal Reserve, and Reserve Bank of New Zealand rate decisions this week, market participants found themselves in pretty good spirits. After all, then low rate party is set to continue for a little while longer, even while the Fed yells ‘last call!’ to suggest the party is ending soon.
As has been typically the case, the perception of an extended period of easy credit conditions and low rates has buoyed risk assets over the past few days. Yet while risk has been ‘on,’ such sentiment hasn’t necessarily spread to FX markets. The US Dollar has been treated as a funding currency since Wednesday, for starters. But the most important development has been the resilience of the Japanese Yen.
Conveniently, with the Japanese Yen holding steady during the rising tide of risk sentiment, the low yielding currency is now primed to make further strides should the irrational exuberance die down. Not only is USD/JPY looking weaker, with price trading below its 8-, 21-, and 34-EMAs, as well as its daily Stochastics and MACD trending lower, but so too are EUR/JPY and GBP/JPY. In fact, both EUR/JPY and GBP/JPY seem very technically inclined to probe the lows that developed around the initial Brexit-related selling in June and July.
— Written by Christopher Vecchio, Currency Strategist
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