The big item across capital markets over the past 24 hours was a set of comments from U.S. President, Donald Trump. In response to the building nuclear threat out of North Korea, President Trump said that the DPRK’s nuclear threats would be met with ‘fire fury and, frankly, power the likes of which this world has never seen’. This set off a cascade effect of risk aversion throughout global markets, with U.S. equities falling-lower on the heels of those comments, and weakness continuing into the Asian and Euro sessions on the morning.
The S&P 500 has fallen-down to prior support around 2,460, the Nasdaq 100 has done the same, moving down to a zone of support that held the lows for the prior two weeks.
Risk aversion has shown in FX-land, with the Japanese Yen being the big-mover, as we’ve seen USD/JPY, EUR/JPY and GBP/JPY all fall below key support levels over the past 24 hours.
USD/JPY Falls Below 110.00, Sets Fresh Two-Month Low
Chart prepared by James Stanley
The big question at this point is whether this is the start of a new move that may turn out to be rather nasty for risk markets; or if this is another ‘buy the dip’ type of opportunity? This question would basically be trying to predict the behaviors of Donald Trump and Kim Jong-Eun, which can be challenging to say the least. So, rather than taking a wild guess at this early stage of the matter; we’re going to look at scenarios on both sides.
Below, we’re looking at two different JPY-pairs that could offer setups for either scenario. For traders looking to fade this recent bout of risk aversion, EUR/JPY could offer attractive upside potential, while those looking to trade a continuation of risk aversion can look to GBP/JPY for such exposure.
EUR/JPY
The Euro has been a freight train for much of the year as markets have attempted to front-run the European Central Bank’s stimulus exit. With a key ECB meeting on the schedule for the first week of September, expectations have been building that we might see the bank offer some sort of strategy or plan for how this might be done.
