Chart Of The Day: Groundhog Day

Written by Tom Fitzpatrick | July 24, 2024

Amazingly for the 2nd day in a row one of the most interesting markets is FX...or more correctly the JPY

At last count we have the potential for at least 10 monthly reversals in favour of the JPY as it starts to move in a similar fashion as seen after it peaked over 160 in April 1990.

This is happening as we have seen stepped up intervention, a turn lower in the Nikkei (Big inverted candle on the monthly chart), continued narrowing in the US-Japan 10-year yield spread as US Yields fall sharply and Japan yields stay close to the highs.

As in 1990 the Fed is getting ready to cut rates while there is increased chatter of more Bank Of Japan rate hikes.

This is all increasingly looking like a game changer

Big Inverted Monthly Hammer On Nikkei

US-Japan 10-year yield spread suggests USDJPY is now way too high

USDJPY will post a bearish outside month off the trend high If it closes this month below 154.55. This would be the first bearish outside month in the whole trend up from 102.59 in Jan 2021
Such a development would suggest at least a test of the 151.91-151.95 support area (previously resistance) but more likely a move into the 140's

Other Potential Monthly reversals are:

EURJPY below 167.53

CADJPY below 112.96

SEKJPY below 14.7605

NOKJPY below 14.5868

GBPJPY below 197.21 (Still a bit away)

AUDJPY below 102.61

NZDJPY below 95.27

CHFJPY below 173.22 (Still a bit away)

CNHJPY below 21.33

JPYKRW above 8.9079

Other things of note

Es1 is heavy this morning albeit not pivoting around big levels here. Some initial support is met at 5,503-5.512 and then 5,333. The bearish outside week seen last week suggests a test of that latter level is very feasible. That would give us a correction close to 7% (Similar to what we saw after the turn lower on 17th July 2000)

NQ1 is also heavy following last night's earning releases and testing good support between 19,654 and 19.687. Below there and extended losses towards 19,023 look likely

The German 2-year yield is now below the head and shoulders neckline at 2.70% with a potential target of below 2.30%

IF seen that would take it below the pivot of the 76.4% bounce at 2.355% which would be viewed as an acceleration point and suggest a re-test of the March 2023 low at 2.10%

A break below there, if seen, would complete a clear double top formation with a target as low as below 1% with the 200- week MA standing at 1.15%

All this as we are also seeing bull steepening in the German 2's10's chart does not augur well and looks likely to test Christine's "patient approach"

The double bottom and inverted head and shoulders patterns here suggest a potential from +10 to +40 bp's

The China 2-year yield hit another trend low today at 1.529% with the China 2's 10's curve now pushing the double bottom neckline at +70 bp's. A break through here opens up a target back towards the 2020 high at 120 bp's.

China 2's 10's curve ready to break out?

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