FX:CADJPY   Canadian Dollar / Japanese Yen
The top performing market is the Yen crosses which continue to soar despite ‘risk’ hesitation, but will Ukraine and monetary policy updates change that mix?

Over the past few years, I’ve watched the various risk asset types that I track rise and fall depending on the general conditions. Throughout this course, the FX-based ‘dividend’ play in carry trade has established a more significant deviation from the traditional measures like global equities. That deviation was a more a disadvantage for carry for the most part…until recently. While we have seen a spurt of activity recently from the likes of the S&P 500 , there has been a far more impressive charge for the Yen crosses as risk appetite, interest rate forecast and commodity inflation (a terms of trade drive against the Japanese currency) have traded their position at the wheel to push these pairs higher. The top performing Yen cross is still CADJPY which has extended its rally with a 1.3 percent charge to an official 10th consecutive session of gain which is the longest rally since April 2014. Historically, this and other Yen crosses hold a fairly strong correlation to the S&P 500 , but this charge certainly generates a premium.

While the charge behind the Yen crosses is impressive and it a fairly distinct fundamental backing via rising interest rate expectations, I think the move is very stretched. Yet, ‘stretched’ does not mean that the markets have to reverse course immediately. There are many times in financial history where markets have ‘remained irrational longer than the idealists have remained solvent’. That said, it is important to establish a strategy in case these markets short start to fall back to earth. While I like the technical look and fundamental arguments of USDJPY , CADJPY and GBPJPY ; EURJPY represents a better balance for me. There is still range resistance in view for this cross and it has perhaps the most underwhelming yield forecasts of all the major crosses. Of course, I am not going to simply try to pick a top. I’ll look for evidence that the market is turning on both these pairs with technical cues but also look for a clear fundamental thread which the market-at-large is likely to follow. Patience is a virtue.


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