Japanese Yen Conflicted as Risk Trends Mix With Key GDP Report

[Electron]

The Japanese Yen outlook looks murky in the week ahead as risk trends compete with a nominally recession-ending second quarter Gross Domestic Product report. Short term (30-day rolling) correlation studies reveal the Yen’s average value against a trade-weighted basket of top currencies is now -90.4% inversely correlated with the MSCI World Stock Index. This means that the Yen is likely to strengthen if stocks should reverse lower.Indeed, global markets ended July trading at the highest level relative to earnings since October 2003 – a year when the global economy grew 2.7% in real terms – making them look decidedly overvalued at present considering the kind of earnings growth that can be expected in year when real World GDP is set to shrink for the first time in the postwar period. Technical positioning also looks to be hinting at a bearish turn ahead,the MSCI World metric is setting up a rising wedge bearish reversal chart formation and showing negative divergence across momentum studies.

[Pinalli]

YEa, could we be at an inflection point here in the AUD/JPY currency pair? Structurally, this is an interesting area for the pair. The recent rally above the old 80.50-area high was rejected and now we are at the 0.618 Fibonacci retracement level from the top to the recent 76.40 low.

This area coincides with the previous recent high around 80.00, so it will be interesting to see how the pair behaves here, especially after the US bond market results (from a JPY perspective) and after the Australian employment report (from an AUD perspective) which are due out later on today.