Traders look to hedge in current climate

15 February, 2018

The USD bull is continuing to be a rare thing indeed in the current market climate and that's no surprise when you look at the data as well. CPI figures released earlier were positive coming in stronger than expected at 0.3% m/m (0.2 exp), however, the market had other ideas after retail sales came in much worse than expected at -0.3% (0.2% exp). These figures continue to be a mixed bag and give credit to market jitters at present. However, the inflation figure has boosted the chances of seeing four interest rate rises in the US this year, so markets will be looking very closely at the wordings from the FED as global inflation certainly becomes a real thing again.

One of the most interesting trades at present thus far has been the USDJPY, which has found itself under a lot of pressure lately. The reason being that markets are worried over the fall in equity markets and the spike in bond interest rates so are looking to hedge themselves. The real question will be how Abenomics comes into play to deal with this large rise in the value of the Yen. Previously, the Bank of Japan had said it would closely watch speculative movements in the Yen, so it could be a case that some action on their does come into play further down the line. For the moment though it would seem that the USDJPY is a bearish trade with all the market volatility.

With the USDJPY in free fall at present the bears certainly do look in control from a technical perspective. It had always been slightly bearish in the past few months but is moving at quite a pace now. Currently support levels can be found at 106.796 and 105.659. With 105.659 likely to be the next major target traders move towards. In the event we do see a bounce back up, and we will see a bounce eventually with the USDJPY. Resistance levels can be found at 108.328 and 109.385, but I would be hesitant to bet on this anytime soon given the market's bearish nature at present and lack of firepower from the Bank of Japan.

The other major talking point today was of course gold as it rocketed up the charts on the back of stronger inflation fears and volatility in markets. Previously it had been suffering and stagnated for a bit but no more as it came back into fashion in a big way.

With gold now pushing higher again, and touching resistance at 1349, we could be looking at the end of the previous bearish corrective wave and another push higher for the precious metal. The next target above this will be 1357 and a breakthrough here would be a very bearish signal in the market. In the event we do see it swing back a bit lower, I would target support levels at 1336 and 1326. However, gold has always been the investors favourite in times like this where volatility reigns in the equity and interest markets.

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