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USDCNH - Testing new highsThe trajectory of the USDCNH is a burning question as it approaches the highs witnessed in November 2022. Recent weeks have seen China's economic robustness wane, and as a result, attempts by its central bank to ease the situation have led to a weakening of the CNH. This dynamic becomes clearer when considering the interest rate differential between China and other nations. In contrast to the U.S., which is on a rate-hiking journey, China's recent interest rate reductions have amplified the rate gap between the two nations. Overlaying the USDCNH currency pair with this interest rate differential reveals a clear correlation: as the differential grows, the USDCNH rises in tandem, driven by the depreciating CNH against the USD. A possible factor behind this movement is the "carry trade", where investors borrow in CNH at low-interest rates to invest in higher-yielding assets. This phenomenon isn't unique to the USDCNH. Japan, another country that has adopted an easing stance, exhibits similar patterns. As the rate differential between the U.S. and Japan expands, so does the USDJPY currency pair. Examining the dollar independently, there's potential for an upward surge. It's currently trading close to the top edge of a descending channel, with the RSI indicating it isn't oversold yet. With the Jackson Hole Symposium slated for later this week, all eyes and ears will be sensitive to any unexpectedly hawkish remarks from the Federal Reserve Chair, which could lead to another surge in the dollar, driving the USDCNH higher. On the one hand, the dollar has the potential to break higher based on technical, on the other hand, the PBOC is likely to ease policy further as it deals with the economic fallout of its property sector. Considering the above in an eventful week when the Jackson Hole Symposium is to be held, we see opportunity for a risk managed long position in the USDCNH at the current level of 7.3126 with a tight stop at 7.245 and take profit at 7.460. Each 0.0001 per USD increment in the USDCNH future is equal to 10 CNH. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com
CME:CNH1!Long
by inspirante
USD/JPY slides after BoJ rate checkThe Japanese yen has posted sharp gains today. USD/JPY is trading at 143.09, down 1.00% on the day. The yen has taken investors on a roller-coaster ride this week. On Tuesday, the dollar shined, posting broad gains against the majors and climbing 1.19% against the yen. The catalyst for the upswing was the US inflation report, which was higher than expected. The yen has recovered most of these losses today, after reports that the Bank of Japan had conducted a rate check, which could signal currency intervention in order to prop up the ailing yen. The BoJ has rigidly maintained its ultra-loose monetary policy in order to stimulate Japan's fragile economy. As part of this policy, the BoJ has kept a firm hand on its yield curve control, and the price for this stance has been a freefall in the yen, which is done an astounding 30% against the dollar this year. Japanese policy makers have fired verbal warnings about the yen's depreciation causing deep concern, but the markets have learned to ignore the rhetoric, which hasn't been backed up by any action. The yen hit 144.99 last week, a new 24-year low, and there has been speculation that 145 is a line in the sand for Japan's Ministry of Finance, which would be responsible for a currency intervention by purchasing a massive amount of yen with US dollars on the currency markets. Japanese officials haven't ruled out intervention, but there is a legal hurdle as Japan cannot intervene in the currency markets without permission from the G-20. The last time Japan intervened to prop up the yen was in 2011, in the middle of a financial crisis in Asia. Still, investors will be paying close attention to the BOJ's meeting on September 22, which comes just one day after the Fed's next meeting. Any hints of intervention could send the yen sharply higher. If, however, Japan decides once again to stay on the sidelines, the yen has more room to fall. The Fed is likely to raise rates by 75bp at the upcoming meeting, but there is a reasonable possibility of a massive 100bp hike as well. With the yen at the mercy of the US/Japan rate differential, I expect the yen to continue to lose ground, barring some dramatic action from Tokyo. 1.4363 is the next line of resistance, followed by 144.81 USD/JPY has support at 142.56, followed by 141.88
by OANDA
Japanese yen can't buy any loveThe Japanese yen is down sharply for a second straight day. USD/JPY is trading at 144.87 in the North American session, up 1.45% on the day. Later today, Japan releases Final GDP, which is expected to come in at 0.7%, up from the initial GDP estimate of 0.5%. It's been a disastrous week so far for the yen, as USD/JPY has jumped 3.31% and is quickly closing in on the 145 line, which hasn't been breached in 24 years. It was just a few days ago that there was concern about the yen breaking 140, and here we are at the lofty 145 level. Predictably, Tokyo has responded with warnings about the yen's performance, with the Chief Cabinet Secretary saying that officials are ready to take action if necessary and the situation is being carefully watched. We've heard this rhetoric before, but the lip service hasn't been backed by any action. The 145 line is not a magic line in the sand that will trigger intervention by the Ministry of Finance, but if officials elect to stay on the sideline, we can expect the yen to continue to depreciate in the current economic climate. Japan's Household Spending, released on Tuesday, was a disappointment. The reading of 3.4% for July dipped from 3.5% in June and missed the 4.2% estimate. Domestic activity has improved somewhat in the post-Covid era but the economy remains weak and households continue to be hit with high prices for energy and food. Inflation is around 3%, much lower than in other major economies and not enough to force the BoJ to tighten policy. With the BoJ enforcing a cap on JGB yields and the US/Japan rate differential widening, there is more room for the yen's slide to continue. USD/JPY has support at 142.75 and 141.48 USD/JPY is testing resistance at 144.70. Above, there is resistance at 146.65
by OANDA
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