Flipping USD/JPY longs to CHF/JPY shorts

I recently suggested buying USD/JPY, however with the prospect of further BoJ action diminishing and with US payrolls in the spotlight, I am taking profits on the trade.

Today’s US payrolls report is an interesting one, in so much that consensus is the highest it’s been since May 2010, however looking at price action in the USD and US bond market suggests the market is not positioned for a strong report. The lead indicators are generally stronger, with the ADP private payrolls and the employment sub-component of the ISM manufacturing report showing good upside, so it’s interesting to see the divergence between good data and market positioning.

The pair needs to close above the 50% retracement of the April sell-off at 102.73 and USD/JPY has struggled to break this level on at least four instances through April. Stochastics are topping out and starting to head lower.

The Bank of Japan (BoJ) meeting this week, and more specifically the narrative from Mr Kuroda, suggests the BoJ is very comfortable with its current monetary policy settings and anyone expecting more easing could be disappointed. This should keep JPY sell-offs contained and in fact if we see increased volatility over the coming weeks (which I expect) then USD/JPY could head lower.

I will re-assess USD/JPY on Monday, but right now looking at both the fundamentals and technicals there is no clear trade here and thus I move to the sidelines.

To take advantage of a potential increase in volatility I think CHF/JPY shorts at spot (116.35) could be a good way to trade and feel placing a stop at 117.80 (just above the series of high in March and April) makes sense. I will look for a move through the April lows of 115.00. I will update this trade periodically.


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