6 May 2016, 07:44
Roberto Jacobs


The commonality in USD/JPY V its cross pairs among the majors and MXN is all correlate solidly to USD/JPY at upper 95% except CAD/JPY at 71% and 84% V AUD/JPY. Yet 84% is solid enough and as good to highlight it belongs to USD/JPY. What's driving correlations is all JPY cross pairs highlighted in this report trade below significant break points.

When USD/JPY broke its vital break points, the new marriages occurred and what will change is again important breaks. This means USD/JPY will own its cross pairs for at least many months in the future if not more. At high 90%, this situation could even last as much as one year. The market price will decide yet this correlational situation is important as markets trade in a risk off environment in a big way. Its DXY, fundamental news, Yellen and Fed Funds that should drive these future correlational relationships particularly now as DXY and EUR/USD are on the verge of significant price breaks.

The pair that changed drastically over past months is GBP/JPY yet it deserves special attention since correlations traditionally ran with GBP/USD at high 90's at least over the past year. Why so special is GBP/USD lost correlations to the vast majority of its major pairs except GBP/JPY.

GBP/USD prices were driven exclusively by its strong correlations to GBP/JPY. Now this relationship is not only lost but other pairs are driving GBP/USD prices.

My suspicion is pairs like GBP/CAD, GBP/CHF, GBP/NZD are three prime candidates as all three pairs become their traditional DXY pairs and again confirms if I'm correct the non risk environment currently trading. GBP/USD iremains a problem pair yet overall GBP/USD and the market in total is looking for the impetus to get us moving and trending again.

The focus on MX/JPY is due to Mexico and Japan's economic trading tradition that dates to the 1800's. Both shared a long standing tradition as JPY and MXN commonalities was an exclusive relationship as Silver currency pairs. The economic tradition continues today and seen predominately in Japan automobile factories in Mexico but also in the 2004 Trade agreement signed between Mexico and Japan. Since 2005, Japanese investments in Mexico total so far USD 16 billion while the major investment was found in electric, auomoniles and auto parts. Mexico exports to Japan USD 6 billion since 2005 while Japan exports to Mexico USD 22 billion. Figures may be a bit light as reported by the Mexico Office of Trade Agreements. While Japan manufactures auto parts in Mexico, the parts are shipped back to Japan.

Currently USD/JPY trades below EUR/JPY, GBP/JPY and CHF/JPY and above AUD/JPY, NZD/JPY, MXN/JPY and CAD/JPY. What is seen however is the commonalities in all Jindividual PY cross pairs is all trade below significant break points. NZD/JPY is the most interesting pair to focus as it sits near important points while EUR/JPY is again in a 124 122 range and GBP/JPY in a 155 151 range. CHF/JPY is least favored as it sits dead inside a 108 115 range yet quick trade pportunities exist as prices become oversold and overbouight inside the range.

Highlighted are prices and vital break points. Take th breaks as they occurr.

EUR/JPY. Vital break points 124.29, 125.54, 125.98, 127.83. The list of more vital points travels to 131's. Below point 122.34. Range 122.34 124.29.

GBP/JPY. Vital break points 155.18, 161.63 then as the same in EUR/JPY vital break points travel to 175's with many important points in between. Below break point 151.37. Range 151.37 155.18.

AUD/JPY. 81.27, 83.18, 83.52, 84.77 . Below, not sure here. Crisis lows in 2012 saw 76 80' s.

The 1 month average is 80.43 and 5 day at 80.87. Watch and trade based on shorter 5, 10 and 20 day averages is best recommendation. This pair deserves a much more analytical view.

NZD/JPY. Current 73.76, next points above 73.87, 74.46, 75.89, 76.08, 76.85. Below 72.86 and 69.21. Range 72.86 73.87.

CHF/JPY. From 111 currently, next 114.65, 114.91, 115.74 then below 108.72, 106.12, 105.16. Range 108.72 114.65.

CAD/JPY. Current 83.56, next point breaks above 84.27, 85.84, 87.46, 88.17. Below, good question. 83.14 is 4 month average, 83.09 is 5 day average. 81.27 is monthly close November 2012.

MXN/JPY. Current 6.05, next point breaks above, 6.31, 6.39, 7.05, 7.07, 7.09, 7.26, 7.33, 7.61. Most important point 7.33.


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