USD/JPY: Diverging Away from a Worsening Risk Profile

Divergences taking place between a cheap Yen and the deterioration in risk flows. While it may struggle to muster gains against a bullish USD, expect the Yen to regain ground, especially on the outcome of a breakout of the trendline.

Monitor the breakout of the trendline closely. Note, the index encapsulates the most risk-sensitive asset classes, which when combined, allows us to make sense of the actual risk on/risk off profile in the FX market, with some subtleties that we will explore in coming days and weeks. For instance, is the index driven purely by USD strength? There might be some outlier days, but by and large, it's a great predictive index to use when trading risky FX pairs the likes of the Yen, Franc, US Dollar of metals such as gold.