There are two conflicting signals in the market. On one hand we have the consistent downtrend in the USD which has been most conspicuous against currencies like the AUD but has also been very clear against the EUR and the other majors. On the other hand we have a marked increase in the VIX which indicates an increased state of caution in the financial markets. The market is undoubtedly very short USD and any sign of a major risk event will see positions closed very quickly, probably in very thin markets.
It is no wonder then that we are in range trading mode as the market tries to decide on its next big move. Perhaps the above two reasons are why the USD/JPY is finding so many willing sellers, despite the poor Japanese fundamental outlook. Selling USD/JPY leaves one short USD plus with a quasi-risk-aversion trade, the best of both worlds perhaps?
