The Japanese yen fell versus the majors with the help of a surge in USD/JPY that marked the end of a long period of consolidation for the pair.
Indeed, USD/JPY had been holding within a rising wedge formation for weeks, and finally managed to break above the February and June highs of 108.60. Meanwhile, US equity markets have managed to hold on to their recent gains, so does this mean that the carry trade is back? Risks for global markets remain high, but it appears that for now, risk aversion has faded. Indeed, traders can’t remain bearish forever. That said, I think this is a development worth watching and trading, but mostly because it is likely to eventually provide an opportunity within the next few months to sell carry/risky assets. Looking ahead, Japanese machine orders for the month of June are forecasted to fall 9.5 percent, which would be inline with recent comments by government officials saying that the growth is “deteriorating,” and that there is “a high possibility the economy has entered a recession.” My fundamental bias for the Japanese yen: bearish…for now.
