USDJPY trades to the highest level since 2002 The USDJPY is trading higher once again today and in the process has blown back through the June 2015 high at 125.86 and the high from Wednesday t 126.31. That move puts the price at the highest level since May 2002 nearly 20 years ago (see weekly chart above). My USDJPY charts are running out of history. I have the May 6 week swing high up at 128.920 and that’s it (see chart above). There remains some room between the current price at 126.46 and that 128.92 high, but not much. Driving the move higher is central bank rate policy. The Fed is intent on a series of tightenings to get back to the neutral rate (at least) at around 2.50% (and may have to go higher). The Fed is expected to hike by 50 bps at the next meeting in March and the market is expecting another 50 bps in June (the current rate is 0.50%).Meanwhile, the BOJ is happy to keep the status quo and in fact are looking to limit the moves in their yields. That dynamic has led to a surge in yield spreads between the US and Japan debt instruments. Looking at the 10 year yield spread below, the spread between US 10 year yields and Japan 10 year yields has widened to over 250 basis points from about 153 basis points on March 7. Note the yield spread basing against its 100 day moving average back in early March before moving to the upside. The US 10 year to Japan 10 year yield spread Over the same period, the USDJPY has moved from around 114.82 to the high today of 126.68 or 1186 pips (10.32%). Also note how the USDJPY based against its 100 day moving average back in early March before moving to the upside.Those MAs do tend to give traders risk and bias defining clues. USDJPY has searched since basing against its 100D MA Those are big moves. However, with inflationary pressures still not fully resolved (commodities are still relatively up there with oil back at $106 after trading at $93 on Monday, natural gas at highest level since 2008, corn at highs since 2012, wheat moving back higher and soybeans also elevated, etc), and employment at or near full employment levels, the fear is the trend has the possibility to continue (in spreads and in the USDJPY’s move). When you trade at such extremes, it is hard to grasp on to targets on the topside(we are at highest levels since 2002 after all). However, where there’s a will there’s a way. One tact that tends not to work – especially in a trending market – is to get suckered into the idea that „the market is way overbought, so the only trade is to sell“. My response is been, „the markets have been overbought for a while, and all those traders who have sold are likely adding to the bullish bias today“. The better tact for traders is to say, „The market is overbought, but sellers have to prove that they can take back control.“ How can they do that? Looking at the hourly chart below, the price high from Wednesday’s trade reached 126.31. A move back below that level and staying below that level would give sellers a level to lean against. Sellers would prove they can win a battle by moving below that level and staying below (and targeting other lower levels). USDJPY is overbought but that trend can continue Alternatively, the rising 100 hour moving average (blue line in the chart above) currently at 125.684 would be a another level to get to and through, and would increase the bearish bias in the process. Yesterday, the price moved down to test that 100 hour moving average (see blue line in the chart above), and although the price did dip below the moving average line it was only by a few pips before the price rotated back to the upside. Sellers who sold below the level would likely cover on the move back above the moving average level when momentum started to increase (hence the fuel for more upside momentum). Nevertheless, going forward moving below the 100 hour moving average and staying below would be indicative of potentially more corrective downside probing from the overbought conditions. That would be a way that sellers could prove they can take back more control. What about the upside? Can traders target a level to lean against on a run further to an overbought level on the upside? Looking at the hourly chart above, connecting the highs from the week on Monday and again on Wednesday, the upward sloping trendline cuts across currently at 126.96. That level is close to the 127.00 natural resistance level. Sellers looking to pick a top could lean against that level with stops on a break above. It is trading against the trend, but at least risk is defined and limited against two targets in the same area.  Note however, that if the price moves above, get out. . Trends are fast, directional, and tend to go farther than traders expect. Also the most money is lost in trending markets. So avoid trading against the trend unless you have real technical reasons i.e. like the reasons outlined above with risk defined. Selling simply because the price high and „overbought“ is not an option. Remember, overbought in a trending market becomes more overbought as the market continues to trend. That is what a trend move does…Also, always keep that in mind you don’t have to sell.   Instead try to get on the trend by buying against support. The buyers who leaned against the 100 hour MA near 125.15 yesterday are looking 126.48 today.  

Capacity utilization continues its recovery higher US industrial production +0.9% versus 0.4% estimate prior month revised to 0.9% from 0.5% US capacity utilization 78.3% versus 77.8% estimate last month revised to 77.7% from 77.6% manufacturing output for March increased 0.9% versus 0.6% estimate. Last month saw an increase of 1.2% industrial production year on year rose 5.47% versus 7.5% last month Other highlights from the Fed on the state of the manufacturing sector: Total industrial production advanced 8.1 percent for the first quarter. The output of motor vehicles and parts jumped 7.8 percent,motor vehicle production contributed to increases of 3.9 percent consumer durables and transit equipment increased 5.2 percent Excluding the large gain in motor vehicles and parts, the output of durable goods increased 0.4 percent in March, with most industries posting gains; only nonmetallic mineral products, primary metals, and furniture and related products recorded decreases The index for utilities increased 0.4 percent, The index for mining advanced 1.7 percent. At 104.6 percent of its 2017 average, total industrial production in March was 5.5 percent above its year-earlier level. Capacity utilization climbed to 78.3 percent, a rate that is 1.2 percentage points below its long-run (1972–2021) average. Although, the capacity utilization is still below it’s long run average by 1.2% (from 1972), it still is at its highest level since January 2019. The 2018 cycle high reached 79.9%. As the, economy continues to chug along and shortages in autos and building materials continue as industries recover from the pandemic, supply chain issues, and employment remains tight, that can in turn lead to more inflation and inflation expectations before reaching higher capacity limits.  If workers are needed to source higher levels of capacity, that could be a problem.  The good news is manufacturing advancements can require less workers as automation advancements can increase capacity without the need for added manpower.  

Bitcoin was down 3.4% on
Thursday, ending the day near $39.9K, although it managed to bounce back above
$40.1K by Friday morning, cutting the intraday decline to 2.8%. Ethereum has
lost 2.5% in the last 24 hours, and other leading altcoins from the top ten are
predominantly declining, from -1% (BNB) to -7.3% (Terra). The exception was
XRP, which added 5.4% during this time.

BTC
can develop a reversal
According to CoinMarketCap, the total capitalization of the crypto market
decreased by 2.8% per day, to $1.87 trillion. The Bitcoin dominance index fell
by 0.3% to 40.7%.

By Friday, the cryptocurrency fear and greed index returned to the extreme fear
territory, losing 6 points to 22. US stocks failed to build on the offensive,
losing all of the previous day’s gains, leading to a stronger selloff for
bitcoin compared to alternative cryptocurrencies.

From the technical side, Bitcoin is trading near the support level, which runs
through the lows of January, February and March. A formal signal to break the
support will be considered a failure under the previous lows in the $38K area.
The ability to develop a reversal to the offensive from these levels, on the
contrary, will reinforce the importance of this moderate uptrend line.

Crypto
news
The head of Ripple noted that the court with the SEC is going “much better than
expected,” which provoked a wave of XRP growth, allowing the coin to resist
gravity.
BlackRock CEO Larry Fink said that the largest asset management company continues
to study the cryptocurrency sector.

Amazon CEO Andy Jassy said that the company has no plans to introduce payments
in cryptocurrency in the near future, although it is exploring the
possibilities of digital assets. At the same time, he looks to the future of
cryptocurrencies and NFTs with interest and optimism.

The Bank of Canada is exploring scenarios for the coexistence of digital and
fiat currencies, the first regulator to decide to use quantum computing for
this study.

Bank of Japan chief executive Shinichi Uchida said the upcoming digital yen
will not be used to achieve a negative interest rate. The second stage of the
launch of the digital yen started on March 24th this year.

 
This article was written by FxPro’s Senior Market Analyst Alex
Kuptsikevich.

 

The report says that the BOJ will raise its inflation forecast for the current fiscal year to near 2% later at this month’s policy meeting amid a surge higher in global commodity costs, resulting in higher energy and food inflation.That said, the Japanese central bank will continue to bunker down on the need to keep monetary policy ultra-loose in order to bolster the economic recovery from the pandemic.The sources say that the BOJ will likely lift its core consumer inflation forecast to above 1.5% from the current estimate of 1.1%.The BOJ will next meet on 28 April.

CPI +4.5% vs +4.5% y/y prelim The preliminary report can be found here. No change to the initial estimates as French inflation surges higher, owing much to a sharp acceleration in energy prices. That said, food prices also has increased significantly compared to the same period last year as price pressures in general are pushing higher – not helped by the Russia-Ukraine conflict.Looking at the details, energy prices showed a jump of 29.2% y/y in March as compared to the 21.1% y/y increase in February. Meanwhile, food prices were up 2.9% y/y in March as compared to the 2.1% y/y increase in February.

The Chinese military says that the drills are targeted at the ‚wrong signal‘ sent by the US about Taiwan.For some context, six US lawmakers led by Senator Lindsey Graham arrived in Taipei late yesterday evening. The rest of the delegation comprises of Senator Robert Menendez, Richard Burr, Robert Portman, Ben Sasse, and Ronny Jackson. This was a previously unannounced visit and surely will irk China even more.

For all the talk in wanting to fight against inflation, the ECB certainly isn’t hinting at much conviction. The key word yesterday was flexibility as the ECB wants to be able to be afforded policy options and not be cornered into hiking rates as soon as possible.Lagarde’s press conference made that clear when she said that rate hikes could come any time between a week or a few months after APP purchases end, which is still believed to be scheduled for Q3.It’s not like we weren’t warned. *coughs*The lack of conviction certainly leaves little room for a potential move in July, although ECB sources reported that it may still be on the table. But given the tight turnaround time, it could be unlikely unless inflation threatens to surge much higher. And even then, we may still see policymakers sit on their hands.As for the euro, it’s hard to find much optimism for the time being. With a central bank that isn’t showing much willingness to be aggressive and a rather dour economic outlook with geopolitical tensions still casting a big shadow over the region, it’s a tough one to be positive.EUR/USD is now testing the 1.0800 level once again and if that gives way, we could be on course to test the 2020 low at 1.0635 next.

It is pretty much a placeholder meeting for the ECB as they leave the timeline for APP purchases unchanged i.e. scheduled to end in Q3 while reaffirming that rate hikes will be gradual and will only come after QE ends. But the dovish kicker is more on the subtle change to the forward guidance as the ECB talks up flexibility. I outlined the changes in the earlier post here. In the grand scheme of battling inflation, it isn’t quite needed if the ECB is to eventually deliver on rate hikes. But the fact that they even felt compelled to include this in the statement does say something. If anything else, it offers some hesitation or lack of resolve in pushing for rate hikes. I would argue that is what is causing the euro to drop. That and the fact that kicking the can down the road to June means little chance of a July rate move. EUR/USD is now falling to test its 100-hour moving average @ 1.0872: Break below that and the near-term bias turns more bearish with key support seen closer to 1.0800 and the March low of 1.0806. Lagarde’s presser is the next key thing to watch and we’ll see how much she will want to talk up this supposed flexibility and what exactly does that mean for future policy steps by the central bank.

Prior decisionDeposit facility rate -0.50%Main refinancing rate 0.00%Marginal lending facility 0.25%Reaffirms that APP purchases will end in Q3Rate hikes to only come some time after APP purchases endRate hikes are to be gradualSees rates at present level until inflation meets guidance conditionsFull statementIn essence, there isn’t any change to the policy outlook or main language. So, it is pretty much the status quo.But there are some slight changes to the forward guidance as the ECB stresses on flexibility when it comes to making any future decisions. That doesn’t sound like a central bank that is posturing to move rather aggressively to counteract inflation.Here is the paraphrasing in March:“The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term.“And here is the one for April today:“The Governing Council stands ready to adjust all of its instruments within its mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at its 2% target over the medium term. The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability.“

Headlines:Elon Musk offers to buy Twitter, shares jump 13% in pre-marketWhat to expect from the ECB later today?Bond selling sees a bit of a breatherRussia says Putin to consider a range of measures if Sweden, Finland join NATORussia says ‚balance must be restored‘ if Sweden, Finland join NATOSwitzerland March producer and import prices +0.8% vs +0.4% m/m priorMarkets:JPY leads, AUD lags on the dayEuropean equities slightly higher; S&P 500 futures flatUS 10-year yields flat at 2.688%Gold down 0.1% to $1,974.80WTI down 0.9% to $103.28Bitcoin down 0.7% to $40,960It was a quiet session in terms of headlines as markets brace for the ECB policy meeting decision coming up within the hour.Talk of ‚peak inflation‘ is still ringing and that is seeing the bond selling take a bit of a breather. The dollar is also seen cooling off further though changes are relatively light on the session.EUR/USD stuck around 1.0900-10 for the most part while USD/JPY is marked down slightly around 125.20-30 levels.European equities are holding slight gains but they aren’t indicative of much, taking some optimism from Wall Street’s push higher yesterday. The ECB is the key risk event to watch out for next so that will be one to watch for regional stocks. US futures are more flattish although Twitter shares are jumping in pre-market after Elon Musk proposed to take over the company with a $43 billion bid.