Citi's recent research examines the historical relationship between Brent crude prices and the USD/JPY exchange rate, finding a consistent pattern when oil is trading at higher levels. The bank reports that USD/JPY has seldom dropped below its 200-day moving average in periods when Brent is trading above $80 per barrel and itself sits above its 200-day moving average.
The study then looks at the $60 to $80 per barrel range for Brent and highlights a more nuanced interaction. When crude trades between $60 and $80 and remains above its 200-day moving average, USD/JPY typically also stays above its 200-day average, with only a low incidence of breaches below that trend line. Citi contrasts this behaviour with that of the broader US dollar index, noting that the dollar index more frequently falls below its 200-day moving average when oil prices are below their average within this mid-range.
Citi's analysis points out a different pattern when crude prices are in the $60 to $80 band but trade below their 200-day moving average. In that scenario, the frequency of USD/JPY slipping beneath its 200-day moving average rises. By contrast, the bank states the incidence of USD/JPY declines is low when Brent exceeds $80 per barrel, even in cases where oil is trading beneath its own 200-day moving average.
Turning to present market levels, Citi reports that USD/JPY is trading in the yen 153 to 154 range and that the pair's 200-day moving average is expected to reach around yen 155 over the coming month. According to Citi, for USD/JPY to move below that expected 200-day level, Brent crude would likely need to fall beneath its 200-day moving average.
The research notes the 200-day moving average for Brent currently stands at roughly $70 per barrel. Citi says it expects that average to rise and that, if the outlook produced by its Commodity Research Team holds, crude prices are unlikely to dip below the 200-day moving average before the second half of the year.
The bank's findings underline a historically observed linkage between oil-market dynamics and the behaviour of the USD/JPY exchange rate, while also highlighting how the relationship changes across different ranges of crude prices and relative positions to moving averages.