This Week's Market Strategy – August 13, 2024 (Tue)

Last Monday the 5th, the Nikkei 225 plummeted 4,500 points in its largest decline on record, with USD/JPY falling nearly 5 yen (3.8%) to the 141 range on risk-off sentiment. According to Chicago IMM futures currency data, yen short positions had ballooned to 1.8 million contracts by early July, but approximately 60% were unwound by 7/30. Could the carry trade unwinding be over? The following 8/6, stock prices and USD/JPY rebounded sharply, ending the week on an adjustment note. Early this week, USD/JPY remained firm, temporarily touching the 148 range. In the short-to-medium term, it appears likely to test higher levels, but the medium-to-long-term downtrend in USD/JPY seems poised to continue through at least May of next year. Therefore, short-term strategy: buy dips, medium-to-long-term strategy: aim for shorts?

Gold sharply reversed lower earlier in the week, but the 2,400 support level proved very solid with a sharp rebound underway, currently retesting the all-time high of 2,522.50 from two weeks ago. Given that gold maintains an upward bias for the year, we recommend long positions on dips to around 2,350–2,400.

WTI crude oil has risen for five consecutive business days amid ongoing reports of Iran potentially attacking Israel and continued supply-side concerns. We had a close call when prices dropped below 72.50 early last week, but after finding support at 71.67, a sharp rally ensued, reaching 80.

Summary: USD/JPY—sell on rallies in the medium term, hunt for buy opportunities in the short term. Dips to around 144.50 are long. Take profits and consider shorts around 151–153. Gold—buy on dips to 2,350–2,400. For short-term positions, cut losses below 2,300, but long-term holds are strongly recommended. Crude oil—wait for lower levels; 72–75 range is recommended for longs. Short-term positions should cut losses below 70.