The first trading day of the month can be just as confusing as the last day of the month
As mentioned earlier, the start of the month can be just as crazy as the last day. This was also quarter end and financial year end in more than a few countries.
The chatter in the market right now is that the USDJPY average in the Tankan report (108.43) is bringing the early hedgers out and that's part of the reason why the yen remains in demand. It's something Morgan Stanley is on the watch for the end of. It looks like we're far from that end right now.
On the other side, a lot of focus is on the falling US Treasury yields. However, what we might have as a vicious circle out of Japan. As money comes back into the country, there's money leaving to go and find higher yields, and what better place to grab a secure yield than a country with relatively strong growth and secure bonds. And so we see money flowing out of Japan looking for yield, and thus bonds feel the benefit. So we have falling yields being blamed for the dollar's fall but in the meanwhile some of those bond buyers might be on the other end of the USDJPY selling (someone has to be, the same as someone is buying US Treasuries), and from the same country that's hedging in yen pairs. It's the old 'which tail is wagging which dog' scenario.
Where it stops or where it leads to is anyone's guess but until we get a clearer idea of that, we have to let the charts be our guide.
In that regard, 110.50/60 hold's strong bids and technical support while close to the 110.00 area we have further tech support, and more strong bids.
USDJPY daily chart
We've just gone through the London fix and we've seen these moves accelerate in yen pairs and the majors. It's hard to know whether this will just be the pick up from the month end, Again as I mentioned this morning, or whether what we're seeing is going to continue on and on.
Either way, stick to the well defined levels and use those as your leaning posts. If they're good well defined and tested levels, they should stand up to this messing about. If they break, that's a sign that something bigger is going on.
