Intraday Market Thoughts

USD/JPY Starts Strong, Japan GDP Next

by Adam Button
Dec 7, 2014 23:43

In early trading in Asia, there has been no hangover for the US dollar after the non-farm payrolls rally on Friday. USD/JPY is up 34 pips to 121.80 to start the week; it's overbought on multiple timeframes but the latest CFTC report shows why buyers may still emerge on any dip. The final revisions to Q3 Japanese GDP are due later. Our final 121.10 target in USDJPY was hit with 300 pips. 5 more currency pairs remain in progress in the Premium Insights.

The UD dollar laid a thrashing on the rest of the forex market on Friday and was the best performer last week – once again. The year is winding down and the rule of thumb for early/mid-December is to keep doing what has worked for the year so that augers well for the dollar.

The market is fully anticipating the Fed to shift more hawkishly at the Dec 16 meeting and to continue to do so in 2015. The danger, perhaps, is that the trade is already overcrowded.

We have read dozens of forecasts for 2015 and virtually all of them argue for continued US dollar strength. It's difficult to argue against the reasoning but that degree of consensus always makes for a dangerous situation.

Note that the daily, weekly and monthly RSI in USD/JPY is above 80. If the market suddenly finds a reason to buy yen, a violent squeeze could take place. That could come with final revisions to Q3 Japanese GDP at 2330 GMT. The shockingly soft -1.6% q/q (annualized) reading helped cause the rout on the yen but economists expect it to be revised to -0.5%. A better revision could even erase the recession.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -159K vs -165K prior JPY -111K vs -104K prior GBP -31K vs -31K prior AUD -41K vs -44K prior CAD -18K vs -16K prior CHF -23K vs -23K prior NZD -2K vs -2K prior

One reason not to be worried about a lasting squeeze in USD/JPY lower is that the short position still remains short of the -120K from late September and -145K at this time last year.

Act Exp Prev GMT
GDP Annualized (Q3)
-0.5% -7.3% Dec 07 23:50
GDP (Q3) (q/q)
-0.1% -1.9% Dec 07 23:50
GDP Deflator (Q3) (y/y)
2% Dec 07 23:50

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