Analysts at Morgan Stanley are making a courageous call on USD/JPY, recommending shorts with a target of 94.00/92.00. They recommended the trade from 101 (spot is now at nearly 102) with a stop at 103.00.
“We believe the JPY weakening trend has overshot many of the flow indicators, suggesting there is now an increasing risk of a correction. Indeed, our analysis of portfolio flow data highlights that Japanese investors have not increased overseas allocation so far, but have in fact repatriated funds from abroad, which risks triggering a JPY corrective rebound,” the Morgan Stanley analysts wrote.
A week ago, I talked about a Morgan Stanley trade on AUD/CAD that turned out to be correct. The difference is that the AUD/CAD trade went with the momentum of the market while this one goes dead against it.
I give them full credit for courage but picking a top in a trend like USD/JPY and hoping for a 1000 pip correction is a long-shot — one so long it doesn’t even justify the 10-1 risk/reward ratio from these levels.
