This Week's Market Strategy – Tuesday, May 14, 2024

Last week lacked major catalysts. Among the major 8 currencies, the yen was by far the weakest, so USD/JPY rose steadily and naturally. FX traders began re-entering long positions on USD/JPY from Friday afternoon of the week before last and are continuing to hold. The IMM FX positions in Chicago showed extreme yen shorts, but the intervention seems to have shaken out quite a bit. However, there are still 150,000 lots of yen shorts remaining. USD/JPY has risen 4.6 yen over 8 days and has broken into the 156 yen range. As it climbs this high, the ceiling appears near. Around 158 yen, resistance should become evident.

Why? A third intervention is not out of the question... Otherwise, it's the Japan-US interest rate differential! The US economy has a stagflation-like atmosphere, with US long-term rates falling. Meanwhile, the Bank of Japan has begun reducing its bond purchase operations, so Japanese 10-year rates are rising and could approach 1% soon. The biggest focus point this week is the US consumer price index on Wednesday.

Gold from last week through yesterday rose to the upper 2,300 dollar range. However, with the dollar strong, the uptrend seems unlikely to continue. If there is a pullback, I would like to establish long positions for the longer term.

WTI crude last week broke below 77 dollars when crude inventory declined contrary to expectations, but it was supported and rebounded. However, it has not yet recovered above 80 dollars. Israel's planned attack on Rafah is also providing support. From a medium to long-term perspective, this rebound is also temporary, and I expect the downtrend to continue for another month or so.

In summary: USD/JPY buy up to 158 yen, gold sell after rebound, buy below 2,200 dollars, crude oil—look for selling opportunities?