Evergrande fears fade aiding USDJPY ahead of BoJ

Fears of Chinese property developer Evergrande becoming a “Lehman type” moment for markets have eased, sparking hopes of a turnaround Tuesday session in risky assets.

Japan flag

As noted by Canadian Bank RBC, the share price of Evergrande has been under pressure since March, a result of the Chinese property developer colliding with a crackdown on property developers by authorities as part of a deleveraging drive. 


Already reflecting a high probability of default, the bond price bond of Evergrande has been trading at a significant discount in recent weeks. Should the situation fail to stabilise, RBC notes that authorities would likely step in to prevent contagion as they did in 2019 with Baoshang Bank. 

Additionally, Evergrande does not have the considerable counterparty derivatives risk that Lehman had when it went under. Instead, a good chunk of the money Evergrande owes is to suppliers, construction companies, and buyers of uncompleted apartments, who are likely to be made good by a government bailout. 

The return of some relative calm has allowed traders to take stock ahead of the first of this week’s developed markets central bank meetings, tomorrow’s Bank of Japan (BoJ) meeting.

Unfortunately, while the BoJ is the first cab off the rank, it will be one of the tamer events. The BoJ is expected to maintain the status quo across all monetary policy parameters, including asset purchase guidelines and forward guidance. 

Turning to the charts after completing a 5-wave rally at the 111.66 high, USDJPY continues to trace out a corrective pullback within a well-established trend channel. A break and daily close above the top of the trend channel, (currently at 110.10) and above recent highs 110.40/50, ideally after Thursday's FOMC meeting, would indicate the correction is complete, and the uptrend has resumed, targeting a retest and break of the 111.66 high. 

Aware that while USDJPY remains below resistance at 110.40/50, allow for a retest of the 108.72 low before the uptrend resumes. 

USDJPY Daily Chart

Source Tradingview. The figures stated areas of September 21st, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from FX

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.