Market News & Analysis


Top Story

USD/JPY Looks Ready for a Pickup in Volatility

Over the last two days the FX markets have been fairly quiet as they wait for the next catalyst to offer some direction.  However, it’s not just been the last two days that volatility has slowed!  My colleague Ken provided me with a chart showing just how slow volatility has become over the last few months.   The chart below shows USD/JPY 1 Month ATM implied vol rebased over year to date.  In other words, the chart shows a decrease of volatility of roughly 40% since mid-August in USD/JPY. (Notice at the far right it has turned up recently.)

Source:  Bloomberg, City Index

What could that next catalyst be for the markets?  At 12:00pm EST, President Trump is set to speak at the New York Economic Club.  One can imagine how upbeat he may be on the economy and although he is not expected to offer any new policies, the markets need to expect the unexpected from the “stock market friendly” President.  Tomorrow the US also offers the October look at CPI and Fed Chairman Powell is set to testify on the economic outlook and recent monetary policy actions before the Joint Economic Committee.  Hopefully one of these events will give us some volatility to trade.

What could some volatility do to USD/JPY?  Many market participants are looking at the inverted head and shoulders pattern on a daily timeframe.  The exact placement of the neckline is debatable; however it appears that if price breaks through the neckline near current levels, the target would be near 114.00. (A catalyst for a move such as this would be stock positive.) There is plenty of resistance though that USD/JPY would need to break through to reach the target, including the 61.8% retracement from the high on April 24th to the low on August 26th at 109.36, the gap fill from early May near 111.10, and the April 24th highs at 112.40.

Source: Tradingview, City Index

However, on a shorter 240-minute timeframe, is appears that price may have broken lower out of a rising wedge.  If that is the case, the target for the breakdown of a rising wedge is a 100% retracement of the wedge, which is near 108.00 (A catalyst for a move such as this would be stock negative.)  That level also coincides with the 50% retracement from the October 3rd lows to the 109.50 highs reached multiple times earlier this month.  There is horizonal support lower near 108.50 and the 38.2% retracement of the previously mentioned timeframe at 108.34.

Source: Tradingview, City Index

Depending on your trading style and timeframe,  with proper risk management, USD/JPY can be traded on either side of the market.  However, the one thing we clearly need is volatility!


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.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital 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), GAIN Capital Singapore 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 GAIN Capital Singapore 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 GAIN Capital Singapore 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.

GAIN Capital Singapore 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.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.