Is this December 2017 all over again? Déjà vu anyone?

Trade set up - That daily chart shows a set-up that is remarkably similar to price action seen through November 2017. Where, after a sell-off and reversal, price consolidated in a triangle pattern. In both cases, we can see stochastic momentum making a series of lower highs, and should price now find sellers off trend resistance the first target is ¥112.25, where a close through horizontal support could suggest USDJPY could genuinely shape up for a re-run of 2017.

Why we like it - There is little doubt USDJPY would be lower than current levels if it weren’t for the massive 81B inflows into US Money Market funds seen last week (source: Lipper). With such intense tightening of US financial conditions, equity volatility and dovish re-pricing of US interest rate expectations, one would assume USDJPY should be trading closer to ¥112. However, when everyone is piling into the safety of short-term debt markets and Japanese investors are buying USD-denominated assets unhedged, the USD is holding up well.
That said, with the Fed likely to produce one of the most dovish hikes in recent memory, altering its forward guidance and lowering its dots plot projection, one questions if the USD is ready to play catch up on a selective basis versus G10 FX. We will be asking if we are set for a re-run of 2017.



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