Trader Insights – further tremors in store for JPY traders

Chris Weston
Head of Research
29 Apr 2024
Japan comes back online after an extended weekend, with the aftermath of the JPY-intervention still reverberating through the souls of FX traders. A 562-pips high-low range in USDJPY has left its mark and whether we see further rapid-fire spikes lower intraday in the JPY pairs will be front and centre - traders need to have that possibility as the primary consideration in their positioning.

The broad consensus view is the move into ¥154.54 was the MoF instructing the BoJ to intervene, although we may not officially know for sure until the end of May. However, for now, many are looking to use this strength in the JPY as an opportunity to reengage with JPY shorts, although selling now – or buying AUDJPY, USDJPY and GBPJPY - still comes with obvious risk, and through all the jawboning and rhetoric the MoF have seemingly done their job and sent a message to a heavily-owned JPY-funded carry position. 

How Japanese equities absorb the JPY move will be interesting, but at this stage, our call is for the Nikkei 225 to open 1% stronger – it wouldn’t surprise to see sellers on the open of the cash market, and naturally stocks sensitive to JPY fluctuations will be where the flow will be centred. 

The HK50 index looks set to take a breather after a run of fine form and significant inflows from Mainland funds. I had been targeting a move into 18,100/200 and maybe that still comes, but after six days of consecutive gains, it wouldn’t surprise to see a few taking some off the top – consider that since 2020 we’ve seen 10 occurrences with such a run, with the index closing lower on the 7th day 70% of the time. That said, after the break of the long-term downtrend and the genuine momentum and upbeat inflows, it feels the chase is on, and there is an element of FOMO in this market. The national pastime in China/HK may have become trading gold, but it seems buying into equity – notably property and tech stocks – is also a favoured play for now. 

The leads from Wall Street are favourable (the S&P500 closed +0.3%, NAS100 +0.4%), and as we close out the month of April, we look ahead at earnings from market darling Amazon, and AMD, on the data side we see EU CPI, US consumer confidence and the Employment Cost Index (ECI), with the ECI holding the potential to throw up some volatility into US Treasuries and the USD, notably if this come in above 1.2% (consensus 1%). 

The intraday tape of the S&P500 was unconvincing and it was a well-balanced day with the cash index tracking a range of 5123 to 5088 – so the fact the index closed at 5116, suggests the bulls slightly had the upper hand. We can also see that breadth was ok, with 72% of stocks higher on the day, and it was only communication services (-2.1%) which underperformed, driven by a 3.4% decline in Alphabet. 

Apple (+2.5%) had a constructive day, with traders feeling the bar to a beat in this week’s earnings report is sufficiently low enough that they can run longs into the event. AMD also grinds higher and holds $160 into earnings, with the options market implying a -/+7.5% move on the day.

Tesla dominates the trader landscape though with another huge gap higher and after a +15.3% gain on the session, we see a 40% rally in the past 5 days. While the 100-day MA has acted as a headwind, many are positioned for a break of $200, with some 222k lots of the $200 strike calls (expiring 3 May) bought on the day. While the news flow has turned to a more constructive tone, with Musk finding allies in China, it is worth recalling that Tesla is an out-and-out momentum beast and feeds not just off sentiment but flow – where strength begets strength, as traders chase and options market makers (who sell calls to traders) have to hedge their exposure as the stock moves higher and through the respective fixed strike by buying the underlying shares. 

Elsewhere there continues to be good interest in the AUD as a tactical central bank divergence play and notably vs the NZD. Copper has gained a further 2.2% and is getting love from the momentum and trend players out here and may get some focus with China manufacturing and services PMI due out at 11:30 AEST.

Gold takes a breather and continues to carve out a tight trading range of 2350 to 2305, as traders question the next big catalyst. EURUSD also gets close attention with EU CPI due at 19:00 AEST where the outcome (consensus 2.4% headline CPI, 2.6% core CPI) could reinforce the divergent stance between the ECB and Fed and see EURUSD shorts reinvigorated. 

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