Charts to Watch-USD/JPY floor, Crowded GBP bulls, Lower US yields

Chart 1: Major support at 152 puts a floor under USD/JPY

Since Japanese officials intervened in USD/JPY at 152, this level has been a key pivot over the last two years. As we saw last week, the aggressive unwind of yen shorts had begun to stabilise following a hold of 152, which had also been the case back in May.

Focus now turns to the Bank of Japan policy meeting, where it is a close call whether the bank will raise rates or not. Consequently, there is a room for a surprise. Should the BoJ hike rates, this would likely leave 152 vulnerable to a break, opening the door to 150.

Chart 2: Historically stretched bullish GBP bet is a headwind

Despite the growing risk of a rate cut from the Bank of England – markets attach a 59% chance of an August cut – net longs in sterling have risen to an all-time high. Consequently, this crowded bullish bet is likely to become an increasing headwind for the currency. Not only are traders poorly positioned for a potential rate cut from the BoE (0#BOEWATCH), but the risks are looking even more asymmetrically skewed to weakness. As we saw with the recent unwind of consensus trades, across JPY- and CHF-funded carry trades as well as tech stocks, a cleansing of crowded GBP bets can lead to outside pullbacks.

Chart 3: Lower U.S. yields ahead?

Last week, the U.S. 10-year treasury yield recorded a death cross – where the 50-day MA closes below the 200-day MA – for the first time since February. More importantly, this is the first death cross since January 2019 where the 200-day MA slope is falling. Typically, when this has occurred, yields have headed lower, particularly when the Federal Reserve embarked on an easing cycle.

With markets now fully priced for a Fed rate cut in September (0#FEDWATCH), the path of least resistance for U.S. yields is to the downside.

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