Trade Call: Long USD/JPY

Japan Buys Up US Treasuries

With global interest rates at a record low, investors everywhere are in search for a respectable yield. The question is, where?

A victim of its own actions, yields on Japanese debt have been pinned near zero ever since the Bank of Japan embarked on its aggressive bond buying program. Europe isn’t much of an option too, as yields turned negative this year on the region’s own quantitative easing.

The answer, is the US. With the Federal Reserve poised to raise interest rates by the third quarter of 2015, Treasuries offer the highest yields among debt from the world’s most-industrialised economies. The surge of the US dollar against virtually every other currency has also made US assets more appealing.

US 10-year Treasuries yielded as much as 1.2 percentage points more than the average for G-7 countries last week, the biggest premium since 2006.

Interestingly enough, HSBC Holdings Plc has said that Japanese investors may funnel USD300 billion into Treasuries over the next two to three years, double the pace of the nation’s purchases since 2012. This accounts for about 60% of the USD500 billion that investors will pull from Japan’s debt market to put abroad through 2017.

Oil

Oil slid more than 1.6 percent in the U.S. and London amid concern over the deepening glut. BHP Billiton Ltd., the world’s biggest mining company and Australia’s largest oil producer, declined for a 10th straight session, losing 1.1 percent, bound for its lowest close since 29th January.

West Texas Intermediate crude lost 1.7 percent to USD44.09 a barrel after sinking 4.7 percent on Friday, and capping a weekly plunge of 9.6 percent, its steepest drop this year. Brent oil fell 1.7 percent to USD53.73 per barrel following Friday’s 4.2 percent retreat.

Last week, a record surplus in U.S. crude inventories prompted the International Energy Agency to say that the country’s storage capacity may soon be strained and could renew the slump in oil prices. The largest oil-storage hub in the U.S., located in Cushing, Oklahoma, is already 70 percent full. To add to the gloom, former Fed Chairman Alan Greenspan said oil prices are yet to bottom as U.S. supplies will continue to expand.

Top News This Week

Canada: Manufacturing Sales m/m. Tuesday, 17th March, 8.30pm.
I expect figures to come in at -1.1% (previous figure was 1.7%).

New Zealand: GDP q/q. Thursday, 19th March, 5.45am.
I expect figures to come in at 0.8% (previous figure was 1%).

Canada: Core Retail Sales m/m. Friday, 20th March, 8.30pm.
I expect figures to come in at 0.1% (previous figure was -2.3%).

Trade Call

Long USD/JPY at 121.05

On the H1 chart, USD/JPY is moving in an expanded range, failing to make a higher high after touching the 122 level on 10th March.

With the strength of the US dollar still in play and the yield premium of US Treasuries over Japanese Government Bonds, I expect the uptrend of the USD/JPY to continue soon. This will happen as more institutional money flows back to the US, particularly from Japan itself.

We will wait for prices to bounce off the support level of 121.00. An entry is placed 5 pips above the support level at 121.05. A stop loss of 30 pips is placed and although the stop loss position doesn’t clear the previous low, we do not expect prices to dip below the tail of the “spinning top” candle formation. We will have two targets on this trade, exiting the first position at 121.35 and the second one at 121.65.

Entry Price = 121.05
Stop Loss = 120.75
1st Profit = 121.35
2nd Profit = 121.65

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