The rise in US Treasuries on thoughts the Fed may need to be more restrictive on rates has been nudging the USDJPY pair higher over August. Look at the relationship between US 10-year yields and the USDJPY overlay on the chart and you can see that close correlation. Furthermore, the seasonals have been very strong for the USDJPY over the last 10 years.

Between August 28 and October 31, the pair has risen 80% of the time, for an average of 2.67%. The largest move was last year with a move of 8.07%. The question now is, will that seasonal pattern repeat again this year? Furthermore, the higher the USDJPY goes the more chance we have of intervention from Japan’s Ministry of Finance. The intervention could suddenly see the USDJPY fall sharply, so that is a key risk to be aware of.

Major Trade Risks: The main risks here are a more dovish outlook from the Fed on the Jackson Hole Symposium or intervention from Japan’s Ministry of Finance.

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