Our strategists were only able to get out two discussions this week, this time focusing on U.K. jobs data, the developments around a potential hike from the Bank of Japan, and U.S. inflation updates.
We thought that best practice was to wait for the data to release and see the market’s reaction, to reduce the directional uncertainty as the market would likely still have plenty of points to catch, as seen with the recent CPI release.
One turned out to rough, while the other played out almost perfectly. Check out our reviews to see what happened and how we did!
Overall, we think this strategy discussion was not supportive of a positive outcome. We think our fundamental analysis was on point, but those comments from BOJ Ueda was unexpected and really shifted yen sentiment. Also, our technical analysis trigger also meant likely entering around the 188.50 area, which was the lows for the week post discussion.
Well, this strategy basically played out as expected, almost to a T. U.S. PPI data came out hotter than expected, weekly initial jobless claims was better than expected, but retail sales data was relatively inline with expectations (arguably weaker on net).
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The reaction in bond yields was instantly bullish, but after the initial spike higher, US10Y fell back, almost to pre-event levels just above 4.20%. That’s where buyers had another opportunity to step in at a great price as yields rallied through the rest of the session up to the targeted resistance area before stabilizing.
So we leaned bearish on GBP/JPY, and after a clear rejection of the 189.00 resistance level, we thought that additional bearish candlestick patterns may begin to draw in more net selling. The initial target might be the 188.00 support level, with the possibility of the downtrend extending further if the US CPI release doesn’t dramatically alter sentiment.
Given that our fundamental triggers played out and the yield moved favorably to technical targets, it’s highly likely this strategy discussion was supportive of a positive outcome, with little need for complex risk management execution or adjustments.
We also noted that U.S. data may be an influence on the broad market, most notably the U.S. CPI read, and how it may influence broad risk sentiment in the short-term. Risk sentiment usually is one of the bigger short-term drivers of currency behavior, especially the Japanese yen, so it was worth noting.
This did bring GBP/JPY up to the weekly pivot point, which did draw in net sellers on Wednesday and Thursday, but buyer were ready and waiting at the 100 SMA as well to keep the pair choppy. On Friday, we saw an upside break of the pivot point area, correlating with the confirmation of large company wage hikes in Japan, as expected.
It would have been possible to achieve positive outcomes with our bearish fundamental lean, but only for traders who played the pivot area as a their entry strategy (or scaled up entries to that area) and actively managed short-term profit taking. Outside of those ideas it would have been a rough one.
10-yr U.S. Treasury Yield (US10Y): Wednesday – Mar. 13, 2023
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With that scenario in mind, we discussed potential scenarios/areas to draw in buyers, (e.g., upside break of R1 Pivot resistance or retest of R2 Pivot support area), and an upside potential resistance area that could turn to net selling.
We paired this development with the Japanese yen, which has been seeing net bullish momentum, on the idea that the Bank of Japan may end their negative interest rate regime in March or April.