USD/JPY reaches a session high of 103.09

Four key markets in focus today: USD/JPY, 2-Year T-Note Decimalised (US two-year treasury), iShares MSCI Russia Capped ETF, EMFX USD/KRW (Korean won).

Source: Bloomberg


Two-year US treasuries continued their steady march higher (in yield, lower in price), taking USD/JPY to a session high of 103.09. I suggested potential long USD/JPY trades on Tuesday in ‘one to watch’ from 101.84, with an upside target of 102.50, with 102.50 being the recent double-bottom target. In hindsight 102.50 was conservative, but a 66-pip move in this pair of late would be considered fairly aggressive. US Q2 GDP at 4% was 100 bp higher than forecast, throwing weight that the weakness seen in Q1 was ‘transitory’, while Philadelphia Fed president Charles Plosser dissented. Having realised a profit of 66 pips, I feel buying pullbacks to 102.40 (just above the 38.2% retracement of the recent rally from 101.09 to 103.09) could be a good entry point for fresh long positions.

2-Year T-Note Decimalised (US two-year treasury)

Good bids seem to be coming into the market on moves to 10,960 after a strong move lower of late. The rising trend drawn from the September low intersects around this level as well, so traders looking for lower prices and thus a continued improvement in US data will be keen to see a downside break and a subsequent move through the September 6 low of 10,950. At 22:30 AEST tonight we get the US employee cost index (ECI), which is a key component for the Federal Reserve’s argument that wage growth is too low. A 0.5% increase is expected, which would be in-line with the highest level since December 2011. Weekly jobless claims and Chicago PMI will also be announced.

iShares MSCI Russia Capped ETF

The Russian MICEX index rallied overnight, which given the new sanctions imposed on its energy and financial companies from the EU and US is very interesting. If you subscribe to the theory that you buy fear, then the Russian market (IG offers the MSCI Russia ETF) looks like a potential long from here. Valuation wise the Russian market trades on 5x forward earnings, which is easily the cheapest market globally. Obviously there is a reason for that though, but this index is one to watch as there is a possibility of an aggressive snap-back rally here.

EMFX USD/KRW (Korean won)

I quite like price action in USD/KRW and feel potential long positions look fairly compelling. On the daily chart we have seen a completed ABC pattern off the July 16 high, backed by a hammer exhaustion pattern (using candle sticks). A move through the 100-day simple moving average at 1034.4 and subsequently through the July 16 high of 1037.6 would be positive, and target the 200-day moving average at 1050.6. On the monthly chart a close tonight above the June high of 1028.15 would therefore print a bullish monthly reversal at the trend low. From a pure risk reward perspective, long USD/KRW looks potentially compelling.

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