This week we have many incentives pointing that the top is set on USDJPY. Let’s enumerate them:
USDJPY dealers are starting to invest in downside hedge. After some weeks of rally, falling implied vols and JPY calls start to look cheap and attractive. With the fact that USDJPY looks toppy, now for the first time in weeks options starts to pricing it to 107.
2. Yields
Another instrument that was helping UJ in its infinite climb now shows signs of exhaustion, 10 Years Treasury Yields (US10YT). Rising borrowing costs could affect company profits and equity investor returns, prompting a flight to the JPY haven if stocks begin to turn. JPY bullish is negative for USDJPY.
3. Risks Of Reversal
Still pointing to the downside and now are in levels that in the past preceded big drops.
4. M3 vs M1 spread indicator of credit creation. Declining credit is JPY bullish.
With all these facts in mind, we prefer to sell USDJPY rallies having it as a core trading and aiming sub 105 as a target!