We have long been a fan of the carry trade but after a month of steady gains it is worth reassessing considering the next set of policy meetings beginning next week on Thursday for the ECB. Note that there is increasing expectation of a move by the ECB this time around which with the three inside down pattern we are seeing in daily charts suggest it is time to book profits from the previous buy on the Yen pairs.
USDJPY
USDJPY is essentially being dragged lower by correlations. With the daily bearish reversals in EURJPY and GBPJPY our immediate risk for USDJPY is to pullback to the weeks consolidation floor at 156.572 though if we are to look at the patterns we should atleast look for things to ease towards the 20D Moving Average (blue line) at 155.694 going into next week. That said we do have US GDP numbers at 1230GMT that could possibly arrest the drop should we see a firm read, consensus is at 1.2%.
EURJPY
Perhaps the most vulnerable to position squaring will be EURJPY given the near certainty of a rate cut happening next week, with the ECB’s next policy meeting on June 06. For now we are looking for prices to ease to 169.271 though if we are to look at the patterns we should atleast look for things to drop towards the 20D Moving Average (blue line) at 168.686 going perhaps even to the 50D Moving Average at 166.358 which has consistently been tested in 4 out of the 5 previous pullbacks.
GBPJPY
Given the steepness of its rally and the new highs, GBPJPY may be among the more vulnerable of the Yen crosses for a sharp pullback. Note however that the Bank of England’s next policy meeting is not until June 20, and expectations are more divided with most now thinking a rate cut will only happen by August. Ideal pullback target here however is low at 197.168, the 38.2 Fib retracement level.
