USD/JPY is very overbought on monhtly chart. Also very good conditions for potential BnB/DRPO patterns forming...Also 10y to 2y spread is inverted and reaching breaking pointMorning everybody,
Today we turn to a bit specific cross-market analysis and take a look at JPY long-term chart. Fundamentally, JPY is very weak currency by three reasons. First is - QE programme. While all other G7 countries turns to tightening, Japan keep going with money printing and easing policy, providing more and more liquidity. Second is very specific bond market. Japan has 200+% Debt/GDP ratio and in fact no foreign market investors, the major part of national debt is held by BoJ.
Finally, the third reason, Japan now is loosing trading balance surplus and has difficult time as export-oriented economy because of commodities price jump. These three factors suggest continuation of downside trend on JPY.
We suggest that it should reach major OP target around 145 area. At the same time, right now market is coming to all-time 5/8 resistance around 139 and at the same time is completing 1.618 butterfly target around 142. In short-term this combination (maybe together with intervention, who knows) could provide background for tactical retracement. So, if you intend to take position - you could wait for this pullback:
View attachment 78326
But it is not all yet. Take a look at GBP/JPY chart. It also confirms that JPY should become weaker as the shape is very similar to USD/JPY and also has few targets above the market:
View attachment 78327
Supposedly GBP/JPY targets should be reached in the same moment as 145 OP on USD/JPY charts. But this is not all yet. Take a look that GBP/JPY target stands significantly lower than the previous top, while on USD/JPY chart it stands higher. Thus comparison suggests that GBP should keep dropping against USD in near term. Thus, our suggestion of downside breakout of 1.14 area on GBP/USD has cross-market background as well.
Thus, cross-market analysis sometimes might be very useful...