The yen cross dilemma (CHF/JPY, USD/JPY, EUR/JPY, USD/CHF)
Lots to chew over on the various yen crosses from CHF/JPY to EUR/JPY to USD/JPY
Heading into the end of the week, one of the big headaches is how to tactically handle yen crosses going forward from here. There are a number of overlapping strands to that puzzle.
The natural inclination is to be reverting back to early summer mode (when the yen drivers were having a sea-change but sentiment was still yield focused). That is, go back to playing CHF/JPY shorts as trend-resumption. After a complex correction back to the late July spike down, this resumption has been the initial impulse indeed. Current pullback has 190~ then the 187s lows below, if we remain in the mode of yield-driven dollar, but running into level and speed bump restraint on the yen leg.
There are a few hesitations, logical and appealing the approach is. Positioning did already have the market fairly long yen - rare among other dollar pairs - while still moderately short Swiss.
And it is easy to forget some of the recent history driving the Swiss carry-trim correction – France hasn’t gone away and indeed up until recently was ‘high beta’ particularly when yields were under upward pressure.
Tech corrective risks also haven’t vanished either, even though the Nasdaq has managed to hold a test of the early summer lows and bounce, even with Nvidia issues. Add to that, USD/CHF had quite an easy run higher after the US data but is now itself running into much more significant and stronger resistance at 0.84 (to then 0.8475). So while currently working well, it’s not without its embedded risk-reward issues.
On top of all that is the big question: if and when there is intervention ahead, then intervention by whom and on what. Whether its Japan on USD/JPY or Japan-US on EUR/JPY makes a big difference to the wider USD-EUR-yen-cross complex - even while giving some background confidence to the medium-term and portfolio/hedging driven major/yen supply that has been evident in recent months.
Lots then to try and weigh up, and maybe react to as much as try to anticipate. It would be natural to be seeing some current indecision kick in before some resolution on the next legs.