Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

This note takes a thorough look, through a technical lens, of major JPY crosses as nearly all show bullish breakouts across the board.When seen in conjunction with rising yields, higher commodity prices, and stable stocks, we get a fuller picture of the reflationary trends that have re-emerged across markets except in Japan where deflationary concerns (even in the face of rising wholesale prices) are never far away. This keeps the JPY the favoured funding currency, as usual.Keep in mind that US yields are likely to continue higher still – the target for US 5-year yield is 1.80% which will probably take a few months to achieve. Such a development would most likely put US 10-year yield well above 2.00%.The only trend, at this juncture, that is beginning to look mature is the rally in Brent Crude, which has effectively met the $85 target area that has been in place for over a month. That does not mean we will reverse but instead could slow down or consolidate ahead of big levels just below $90.

This note takes a thorough look, through a technical lens, of major JPY crosses as nearly all show bullish breakouts across the board.When seen in conjunction with rising yields, higher commodity prices, and stable stocks, we get a fuller picture of the reflationary trends that have re-emerged across markets except in Japan where deflationary concerns (even in the face of rising wholesale prices) are never far away. This keeps the JPY the favoured funding currency, as usual.Keep in mind that US yields are likely to continue higher still – the target for US 5-year yield is 1.80% which will probably take a few months to achieve. Such a development would most likely put US 10-year yield well above 2.00%.The only trend, at this juncture, that is beginning to look mature is the rally in Brent Crude, which has effectively met the $85 target area that has been in place for over a month. That does not mean we will reverse but instead could slow down or consolidate ahead of big levels just below $90.

FX & Rates

Two trends that are becoming clearer in these markets is the rise in yields and the rise in energy prices.Together they spell out a ‘reflationary’ stance which is inter-related to the market preparing for Fed tapering asset purchases. This is further supported by the recent move higher in US breakevens which are now set to trend up. While these may appear to be positive developments and signs of markets moving in the right direction, they do not come without risks.

Two trends that are becoming clearer in these markets is the rise in yields and the rise in energy prices.Together they spell out a ‘reflationary’ stance which is inter-related to the market preparing for Fed tapering asset purchases. This is further supported by the recent move higher in US breakevens which are now set to trend up. While these may appear to be positive developments and signs of markets moving in the right direction, they do not come without risks.

Cross Asset Strategy

<a target="_blank">Markets across the board appear to be returning to a reflationary stance, especially now that we have finally seen some decent activity in US Treasuries.</a>Considering Oil is making new trend highs and the worse-than-expected data in the US already likely to be behind us, it does appear that the catalysts for a turn in Bonds are in place. US 10Y yield looks likely to make it to 1.70% while 30Y yield to at least 2.26% if not 2.40%+ again.Longer-term charts that look at the US yield curve and estimate how steep it can go. These charts suggest that we could be on verge of a very significant uptrend in yields that takes us far beyond the highs posted earlier this year.

Markets across the board appear to be returning to a reflationary stance, especially now that we have finally seen some decent activity in US Treasuries.Considering Oil is making new trend highs and the worse-than-expected data in the US already likely to be behind us, it does appear that the catalysts for a turn in Bonds are in place. US 10Y yield looks likely to make it to 1.70% while 30Y yield to at least 2.26% if not 2.40%+ again.Longer-term charts that look at the US yield curve and estimate how steep it can go. These charts suggest that we could be on verge of a very significant uptrend in yields that takes us far beyond the highs posted earlier this year. 

The delivery of the ECB's policy stance and guidance this week raises questions about what is going on and which direction it is facing. The choice of words by the President is particularly interesting.

The delivery of the ECB's policy stance and guidance this week raises questions about what is going on and which direction it is facing. The choice of words by the President is particularly interesting. 

The recent moves higher in US long end yields, when coupled with a stable equity market environment (US), are likely to continue to support USDJPY and probably JPY crosses. USDJPY is strong above 110.70. Nearly all JPY crosses have something that points towards higher levels. AUDJPY and NZDJPY both posted bullish outside days. GBPJPY shows a decent bullish setup but we need to see a break through the 153.50 area. The 5+ figure correction down on EURJPY since June also looks to be over just when we trade at notable levels on EURUSD .While we are still waiting for breaks to be confirmed on many of these crosses, the emerging setups &amp; price action all highlight the risk of higher levels ahead.

The recent moves higher in US long end yields, when coupled with a stable equity market environment (US), are likely to continue to support USDJPY and probably JPY crosses. USDJPY is strong above 110.70. Nearly all JPY crosses have something that points towards higher levels. AUDJPY and NZDJPY both posted bullish outside days. GBPJPY shows a decent bullish setup but we need to see a break through the 153.50 area. The 5+ figure correction down on EURJPY since June also looks to be over just when we trade at notable levels on EURUSD .While we are still waiting for breaks to be confirmed on many of these crosses, the emerging setups &amp; price action all highlight the risk of higher levels ahead.

Japan

The Japanese yen is the official currency of Japan. 

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JPY (USDJPY CURNCY)

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