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USDJPY Dips Below 156.00 Amid Broad Greenback Weakness

JPY
  • Following the weaker-than-expected ISM manufacturing and prices paid data in the US, treasury yields are seen 9bps lower across much of the curve. The main beneficiary of this in FX has been the Japanese yen, with USDJPY sliding just below the 156.00 handle in recent trade, nearly a percent below the prior session highs of 157.47.
  • For bears, a stronger reversal would again refocus attention on key support at 154.65, the 50-day EMA, and 153.69, a trendline drawn from the Dec 28 low.
  • US JOLTS data and ISM Services PMI will likely play second fiddle to Friday’s employment report, however, given the sensitivity to today’s data, markets will remain on high alert for further JPY volatility across the week.
  • Interestingly, JPMorgan believe USDJPY is overshooting vs. the dollar substantially, whereas USDCHF is overshooting only modestly so is a relatively better dollar long proxy. They note that on a risk adjusted basis, USDCHF and USD/PY have historically the highest risk-adjusted returns in USD-bullish regimes. While CHF beta to the dollar and carry is lower than that in USDJPY, it has experienced lower realized vol on some lookbacks making it screen modestly better on a vol-adjusted basis.
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