The yen could not stand it, investors relaxed again

Yesterday was the day of reckoning for the Japanese yen. We already wrote this week about the failure in the country's economy, but we perceived the lack of reaction of the foreign exchange market as the general inability of the yen to fall due to increased demand for safe-haven assets (see the dynamics of gold prices).

As yesterday showed, we were wrong. The markets harbored a strong grudge against the yen, but they lacked reason. After another wave of optimism arose in connection with the improvement of the epidemiological situation and measures to stimulate the economy from China, the yen strongly recalled everything.

How deservedly the Japanese currency has suffered is a moot point, but the fact remains that the yen lost a lot yesterday. Although, again, in terms of facts, then 2,000 deaths (+136 new) and 75,000 (+1872 new) cases of infection are no reason for optimism to grow. But the yen was sold, and US stock indexes updated another historic high.

What is happening in the financial markets continues to be puzzling, because, looking at the dynamics of gold, there is a feeling that investors are worried about the coronavirus and its consequences, but an analysis of the yen and US stock index charts suggests that the epidemic is a definite plus for the world economies and a reason for purchases even in excess of overbought assets.

Meanwhile, inflation in the UK, USA, and Canada was above forecasts. This, by and large, was to be expected: it is impossible to inflate markets with money without consequences for years - sooner or later the time of reckoning will come. It is likely that we have the first signals.

Just in case, we note that central banks will be required to respond to rising inflation. They will do this by curtailing the operations of quantitative easing and other cash injections, for example, in the repo market, as well as by raising rates.

Rising rates will provoke a chain reaction in the economy and lead to the collapse of bubbles. If 3 years ago, the Fed clearly hoped to gradually blow out a bubble in the US stock market, now it has clearly given up on this hand. That is, the explosion will be very loud. However, so far the markets do not care about this, but now they do not care. I do not care that Apple will fail the first quarter in financial results, that Adida’s economic activity in China has fallen by 85%, that the head of the IMF calls coronavirus the main threat to the global economy, as well as hundreds and thousands of other facts.

Going against such a train is generally ungrateful. But to buy Nasdaq above 9700 with such a fundamental background, the hand categorically does not rise. Perhaps the only option to save the rest of common sense in trading and not to merge the deposit is intraday trading with hard stops.

So today we will sell oil, USDJPY and EURUSD pairs, buy GBPUSD with small stops, and also look for opportunities for buying gold.