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Analysts at TD Securities explained that they closed their USD/JPY short in our FX Model Portfolio after the stop-loss was triggered for a loss of ~2.4%.

Key Quotes:

“We initiated this trade on the basis that trade tensions would worsen and undermine risk sentiment, both of which would weigh on 10yr UST yields. While this narrative largely played out, USDJPY has broken away from traditional correlation structures and has pushed higher instead.”

“Indeed, our HFFV estimate suggests USDJPY should be trading closer to 109. Nonetheless, the JPY appears to be trading in sympathy with the pain observed in Asian FX (see ADXY chart). We do not see trade tensions de-escalating anytime soon leaving conviction to lean against the USD tide in the tactical sense low for now following a break of technical trend resistance located near 111.60/80 (established from the 2015 highs).”

“Though we think the breakdown in cross-asset correlations will not hold indefinitely, a break through technical resistance may exacerbate near-term positioning risks to the topside. This augurs for patience before fading the recent USDJPY upleg. For now, we hold a preference to express trade risks through CAD shorts.”