Courtesy of Tyler Durden
Submitted by Nic Lenoir of ICAP
It is our long held view that USDJPY is headed much higher than where it is now. Today we attach a chart of the 10Y US Treasury yield and USDJPY. We can see on the monthly chart that US yields and USDJPY are highly correlated, and that over the last 10 years divergence between the two has been reducing a lot. This goes along with correlations across markets increasing dramatically over the past decade. However zooming in using the weekly chart we see that over the last year or so, USDJPY has been underperforming quite strongly US yields compared to their historical relationship.
Looking at USDJPY, we recommended to buy on the break of the resistance trendline hourly and in light of strong bullish divergence around 88.50 (03/04). Looking at the weekly chart, we see that we are now closing in on the major resistance of the bearish channel at 92.70. A break here would certainly lead to the start of a much bigger move. There is currently no divergence hourly, but the RSI is around 85 so lightening positions a bit is probably a sound idea. We would keep some core longs and trim tactical positions.
Gold has sold off after triggering the highlighted short term H&S last week and is currenctly on support. As long as we do not close daily below 1,075 here we would build longs, and a break above 1134 would confirm a move towards new highs.