08 September 2023, USD/JPY
USDJPY trading plan:
If the Fed keeps interest rates higher for longer, that means newly issued debt by companies will become more expensive than their existing debt. However, if the Fed has to cut rates due to a hard landing, it would likely make debt cheaper, but the souring economic environment would also likely negatively impact earnings for these companies. Neither option looks particularly enticing if you’re a high yield borrower. And yet, spreads for these issuers are only trading around historical averages. S&P, a rating agency, has downgraded the outlook for 164 high yield companies this year (versus only 18 upgraded outlooks), which is three times as many as last year and represents the worst upgrade/downgrade ratio in years. This is a negative signal for the US stock market and the USDJPY, as these assets are correlated.
Investment idea: sell 147.75 and take profit 146.80.
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