The net beneficiary of the move was Japanese
Yen as risk aversion began to show in FX markets. While many are calling
this a ‘safe-haven’ move, the more accurate description would likely be
unwind. The Japanese Yen remains attractive as a funding currency for
carry trades given the BoJ’s negative rate policy, and in times of
duress, carry doesn’t look all that attractive anymore when the prospect
of principal losses can far outstrip the return from the carry trade.
This is likely why we see USD/JPY weakness in recent cases of risk aversion, as traders liquidate carry trades for fear of what might happen down the road.
This recent wave of weakness broke below a key level of the 50% Fibonacci retracement
of the July-December 2016 major move. This puts USD/JPY price action
within a zone of support that has held the lows in the pair since April.
If this breaks, the door is opened to bearish continuation, but traders
may want to steer those long-Yen setups towards other currencies, such
as the British Pound
Most likely Trades
Sell Below 108.10
sl 108.60
Tp 106.95
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