I have taken a bit of a risk here, because I am already short the S&P and this is another risk-off trade. The 1-year weekly correlation between USD/JPY and the S&P is quite low at 0.23, but USD/JPY is quite highly negatively correlated with Treasury prices (positively correlated with yields) (-0.62) and so is the S&P (-0.54). USD/JPY has been a bet on 10-year Treasuries for ages. But one market is not another, and it would have been unreasonable to pass up a technical signal like the one USD/JPY has just given. Fundamentally, the story is the same as the S&P trade: declining expectations of a V-shaped recovery combined with inflation expectations that are still falling (I use 5-year TIPS to see this) and a disruption in the banking system that is driving buyers away from corporate and riskier sovereign debt into the debt of safer governments are leading to a fall in Treasury yields, and thus a fall in USD/JPY.

Technically, there has been a strong breakout today from a long-term support level. The breakout happened on high intraday volume (higher that the usual volume peak (yellow line on the intraday volume chart)). The market personality page shows that tighter stops have been better for shorting this market both recently and over 10 years, so I have used a stop towards the nearer end of the permissable range (line on the stop loss page).

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