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Yen steady after BoJ meetingThe US dollar has posted small gains, as USD/JPY briefly punched above the 115 line in the Asian session. The yen looked golden last week with gains of 1.15%, but has given up half of those gains so far this week. The Bank of Japan's policy meetings are generally uneventful affairs, with the bank reaffirming its monetary policy. The bank did maintain policy, keeping interest rates at -0.1% and maintaining bond yield targets and asset purchases. But there was a difference at this meeting, with the bank revising upwards its inflation forecast, for the first time since 2014. This is significant because the BoJ is acknowledging that inflation could overshoot its projections, something we never saw in the years of deflation. Inflation in Japan is much lower than in the US or UK, where the central banks have had to tighten policy in order to deal with what has inflation, which has become Enemy Number One. The global wave of inflation, which has seen energy and raw material costs soar, has also reached Japan, and the increase in inflation has forced the BoJ to pay attention to the new phenomenon of rising inflation. For the fiscal year starting in April, the BoJ is projecting inflation of 1.1% up from the 0.9% gain it forecast in October. Last week, Reuters reported that the BoJ is considering the eventuality of having to raise interest rates even if inflation does not reach the bank's two percent target. The BoJ's ultra-accommodative policy won't be changed anytime soon and inflation still remains below 2%. Still, it is noteworthy that for the first time in years the BoJ is addressing inflation concerns, and that could eventually lead to a shift in policy. There is resistance at 115.54, followed by 116.88 There is support at 113.18 and 112.16
by OANDA
Japanese yen dips, BoJ meeting nextThe US dollar has edged higher at the start of the week. In the European session, USD/JPY is trading at 114.56, up 0.36% on the day. The yen is coming off its best week since November 2020, with USD/JPY falling by 1.15% last week. US Treasury yields have taken the yen on a roller-coaster ride. Earlier this month, USD/JPY punched above the 1.16 line, as 10-year US Treasury yields were on a roll and climbed above 1.70%. The yield rally ran out of steam last week, allowing the yen to recover. The yen is very sensitive to the US/Japan rate differential, which has been the driver behind the yen's volatility. The 10-year yield is currently at 1.79%, a whisker below the 52-week high of 1.80%. If the 10-year yield resumes its upswing, I would expect USD/JPY to follow suit. The Bank of Japan holds a policy meeting on Tuesday. The bank is expected to maintain its ultra-easy policy, which sounds like business as usual for the BoJ. However, in what could be a significant development, the bank is expected to revise upwards its inflation view for the first time since 2014. Inflation is much lower than the surging levels we are seeing in the US and UK, but the upswing in inflation is significant, given that Japan has grappled with deflation for years. The BoJ has been quietly tapering its bond purchases, and the bank could eventually raise interest rates even if the bank's inflation target of 2% is not met. The BoJ does not have any plans to raise interest rates, but if inflation continues to rise, bank policymakers will have to begin considering raising rates, which until recently would have been considered almost outlandish. There is resistance at 115.54 followed by 116.88 There is support at 113.18 and 112.16
by OANDA
Buckle up!Dear reader How nice to see you again. I have been busy with public and private clients since 2020, and although I continue to take a keen interest in markets and etc, I no longer have much time other than the (very) occasional consultancy for detailed writings. I am looking for a solution as even the weekends cannot tempt me back into regular updates! There are a couple of trades though that I hear interesting things about - whether they will be suitable for your portfolios, I do not know, but they may be worth considering: Stay Long USDJPY looking for 150, and Short Gold for 1510. Full disclosure I am in full positions in both, Long USDJPY we have covered in great detail already, as with Gold . My in-depth knowledge of the commodity sector is decreasing now as I am further away from it, but from what I hear, these two are capable both medium and long term. I hope this information might be useful to you. I would be grateful for anonymity as a source. Wish you all the best for Q1. Thanks again!
Long
by ridethepig
5
Yen edges below 116, inflation nextThe Japanese yen has edged higher and is back below the 116 level. Still, the yen remains vulnerable, especially with US treasury yields moving higher. Earlier in the week, USD/JPY broke above116 line for the first time since January 2017. The dollar has managed to push the yen to 5-year lows on the back of rising US Treasury yields. The 10-year yield, which finished 2021 above the 1.50% level, hasn’t missed a beat in the first week of 2022 and has pushed above 1.70%. The widening US/Japan rate differential has been weighing on the yen, which is extremely sensitive to the rate differential. If US yields remain high, I would not be surprised to see USD/JPY break past the 118 mark over the coming weeks. Inflation has become a hot topic for the Federal Reserve and the BoE, as policymakers must deal with inflation levels that are double or triple the banks’ inflation target of 2%. In Japan, inflation has been at low levels for years, with deflation a constant problem. However, Japan hasn’t been immune to surging energy costs and rising prices of raw materials, and inflation is now getting some attention from the Bank of Japan. We’ll get a look at Tokyo Core CPI for December later in the day, which is expected to rise to 0.5% y/y, up from 0.3% in November. With the FOMC minutes behind us, the markets are anxiously awaiting Friday’s nonfarm payroll report. The ADP employment report surprised to the upside, with a massive 807 thousand new jobs, double the consensus of 400 thousand. The huge gain led Goldman Sachs to upwardly revise its forecast by 50 thousand to 500 thousand and some analysts are projecting a print north of the 1-million mark. Still, it should be remembered that the ADP report has not been a reliable indicator for nonfarm payrolls. The consensus for the NFP stands at 424 thousand, and if the reading comes in below expectations, we could see the US dollar falter as a weak NFP could delay the timeframe for the first rate hike of 2022. USD/JPY is putting pressure on resistance at 115.78. Above, there is resistance at 116.38 There is support at 114.54 and 113.98
by OANDA
$EURJPY: Daily uptrend once again...Seems like yields have bottomed in the US, we got a shot at a reflationary/reopening move thanks to the recent wave of news surrounding Omicron and the $PFE/$MRK pills, together with a nice sentiment reset for the past month across the board. I'd suggest going long XXXJPY here, I'm in $GBPJPY and $EURJPY personally, but $AUDJPY also has a nice signal as well and historically correlates equities, in particular in periods like what could unfold next. Best of luck, Ivan Labrie.
Long
by IvanLabrie
1
Yen dips despite stronger JPY retail salesThe Japanese yen continues to lose ground. The yen suffered a third straight losing week, and the trend has continued on Monday. With USD/JPY currently trading around the 114.70 level, the 115 line is vulnerable. The pair last breached this symbolic level a month ago, but the dollar couldn't consolidate above this level. Japan's retail sales overperforms Christmas week started off on a positive note, as Japan Retail Sales for November posted a strong gain of 1.9% y/y, ahead of the consensus of 1.7% and above the 0.9% gain in October. Consumers were out in force as Covid-19 cases fell during November. Still, the Omicron variant has started to spread in Japan's major cities, leading to fears that the government could impose health restrictions or that consumers will stay at home to avoid contracting Omicron. Japan is set on spending its way to a stronger economy, and parliament approved a record 10.8 trillion yen budget on Friday, which includes payouts to households and businesses hit by Covid. Japan's economy is expected to roar back in Q4, with a consensus of 6.4% growth, after a contraction of -3.6% in the third quarter. Inflation is on the rise in Japan. In November, Core CPI rose 0.5% y/y, above the consensus of 0.4%. That might seem insignificant compared with inflation numbers in the UK and the United States, but given that inflation has been negligible for years in Japan, this is certainly a change in direction. The uptick in inflation will be welcome news at the Bank of Japan, and should ease policymakers' concerns about deflation. The bank's inflation target of 2% remains a long way off, but inflation could move higher if the Omicron does not derail economic activity. USD/JPY is putting pressure on resistance at 114.82. Above, there is resistance at 115.26 There is support at 113.65 and 112.90
by OANDA
Yen edges lower, GDP revised upwardsThe markets were treated to some positive news out of Japan, which raised its growth projections for the upcoming fiscal year, which starts in April 2022. The government is projecting growth of 3.2%, up sharply from the July estimate of 2.2%. The upward revision comes on the heels of the supplementary budget which was approved in parliament earlier this week. On Friday, the government plans to pass the annual budget of 107.6 trillion yen. Japan's debt is already the highest among developed countries, and this budget will strain the public debt even further. Policymakers are determined to boost sagging economic growth through spending and continuing an ultra-easy monetary policy. The economy contracted by 3.6% y/y in the third quarter, after a resurgence of Covid cases. Japanese companies, like their counterparts in the US and the UK, have been hit with higher costs, as energy and raw material prices have surged. However, unlike their counterparts abroad, Japanese firms remain reluctant to pass on rising costs to consumers, which has kept consumer inflationary prices in check. The discrepancy in wholesale and consumer prices was massive in October - Core CPI rose a negligible 0.1% y/y, while wholesale prices soared 8.0% y/y, the sharpest rise since in over 40 years. Even with the jump in wholesale prices, the BoJ's inflation target of 2% remains far off and this is unlikely to change in the near future. The BoJ has stubbornly clung to an inflation target of 2%, unfazed that this target has little chance of being realized anytime soon. As long as inflation remains below the target, the central bank can be expected to continue its ultra-accommodative policy. USD/JPY is again testing resistance at 114.27. The next resistance line is 114.82 There is support at 113.16 and 112.60
by OANDA
GBP/JPY - Big Test Above We've seen a bit of a recovery in GBPJPY over the last couple of weeks as risk appetite has rebounded in the markets. But how much further can it run? What's helped the move more recently is improving odds on a BoE rate hike on Thursday. It's still widely expected that the MPC will vote against hiking this time and then do so in February when they have a much clearer view on omicron and the economy, but it's now expected to be much closer. A hike could propel the pound higher in the near term and put key resistance under significant pressure. The big test above is 152.50, where the 61.8 fib coincides with recent support, the upper end of the 200/233-day SMA, and the lower end of the 55/89-day SMA. A rotation off here could be a very bearish signal as it would confirm the initial break into bearish territory and suggest the recent correction is just that rather than something more significant. It wouldn't be the first time that the BoE has put off raising rates, despite leading us to believe otherwise. I don't think that would be the case this time though. Rather, they could hike in order to follow through on those warnings and once again catch the market a little off-guard. Either way, with the BoE and BoJ rate decisions to come, among many others, the next couple of days will be action-packed which could bring plenty of volatility.
by OANDA
#JPYUSD Long term view shows weaker US$ and re-test of 110Hi All, my main 3 take-outs from this analysis are the following: 1- In the weekly chart - so long term view - the US$ is possibly going to re-test the 110 area (at least!). In fact, in that area we have a strong uptrend line (in red) which will possibly act as support 2- The cross came out from a descending channel which lasted since the end of 2016, and this breakout happened in March this year 3- Fibonacci tool suggests that the cross might not only re-test the 110 level (38.2 fibo level) but also test the 109 and the 107 (50% and 61,8%) Not a financial advice, just personal opinion. Do your own due diligence and good luck!
Short
by FrancescoMerlettini
Japanese yen higher despite weak CPIThe Japanese yen has edged higher on Friday. USD/JPY is trading at 113.93, down 0.28% on the day. Japan's CPI edged up by 0.1% y/y in October, identical to the September gain. Higher energy costs were behind the increase, which would have been higher if not for a sharp drop in mobile phone fees. These inflation figures are certainly much more subdued than what we're seeing in the US and the UK, where inflation has become a hot issue and is affecting monetary policy. Still, rising fuel prices is a major concern for consumers and businesses, and the government's new economic package is expected to provide some relief. Many businesses have been hit hard by cost pressures, due to the weak yen, supply chain disruptions and high commodity prices. This hasn't translated into high inflation, as most firms are reluctant to pass on these costs to consumers. The Japanese yen remains under pressure and is on target for the dubious honour of being the worst-performing G-10 currency in 2021. The increased likelihood of higher US rates and the surge in oil prices have contributed to the weak yen, which climbed close to the 115 level this week. The yen is extremely sensitive to the USD/JPY rate differential, and a rise in US rates could push the yen above the 120 level. With inflation soaring in the US and the UK, the Fed and BoE are under pressure to tighten policy. There are growing calls for the Fed to accelerate its tapering and the BoE may raise rates next month. It's a completely different story in Japan, where inflation remains subdued. On Friday, the government unveiled a USD 490 billion stimulus plan, the largest ever in the country's history. The government is hoping that the plan will kick-start the lethargic Japanese economy. There is resistance at 115.02 and 116.15 USD/JPY is testing support at 114.58. This is followed by support at 113.01
by OANDA
Dominant currency sentimentHello Traders! BOE rate outlook continues to improves following uk CPI Heading into todays European trading session, the risk tone is mixed. Asia - Pacific indices are weaker, measures of volatility mixed and safe heavens pressured. Leading Asia-Pacific indices to the downside is the ASX 200 at -0,68% followed by the Topix at -0,61%, the Hang Seng at -0,49 and the Nikkei 225 at -0,40 %. The CSI is positive on the session at + 0,05%. In the FX complex, despite the weakness in equities, It's CHF leading to the downside, with JPY also pressured across the board. USD remains the exception, with the currency remaining supported by FED rate hike expectations. Looking ahead, inflation is likely to remain a theme throughout the day, with EU CPI due to be released in todays European session and Canadian CPI due to be released later today. Have a great day! Regards, Vitez
by Vitezabraham
1
NZDJPY Swing trade + Fundamental DriversHello Traders! A high conviction trade is in the table, anything around 80.200 region is very good. Place stops below the supply zone. Take profit at the highs. Fundamental Drivers New Zealand Dollar (NZD) Fundamental Bias: Bullish 1. The Monetary Policy outlook for the RBNZ At their Oct meeting, the RBNZ delivered on expectations to raise the OCR to 0.50%. As the hike was already fully priced, the lack of new hawkish tones we saw a textbook buy-the-rumour-sell-the-fact reaction in the NZD pushing lower. There was additional focus on the RBNZ expecting headline CPI to climb above 4 percent in the near term, but the most important part of the statement was the subsequent comment that the bank still sees CPI returning towards the 2 percent midpoint over the medium term and that ‘the current COVID-19-related restrictions have not materially changed the medium-term outlook for inflation and employment since the August Statement’. Thus, despite recent covid concerns, inflation concerns and energy concerns, that part of the statement acknowledged that nothing has changed in terms of the bank’s OCR projections released at the August meeting. Unsurprisingly, the bank also stated that their future rate path is contingent on the medium-term outlook for inflation and employment, which means keeping close tabs on incoming data and the virus situation will remain a key focus for us in the weeks and months ahead. With the bank now being the first to hike rates among the major central banks and sitting on the highest cash rate among the majors, and with an OCR projection that is still head and shoulders above the rest, the bias for the NZD remains firmly titled to the upside, and as rates keeps rising, the currency’s carry attractiveness will be a key focus point for the NZD in the months ahead. 2. Developments surrounding the global risk outlook. As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term, but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 3. Economic and health developments Virus cases can still have an impact on NZD sentiment, which means the fact that NZ virus cases is at record high levels is something to pay attention to. For now, it’s had very limited impact on the NZD due to the NZ government abandoning their covid-zero strategy and since virus risks have been downplayed by the RBNZ, but further escalation leading to more lockdowns will be important to keep on the radar. Japanese Yen (JPY) Fundamental Bias: Bearish 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. With bond yields looking a bit stretched at the current levels any decent mean reversion is expected to be supportive for the JPY, so it remains a key asset class to keep track. Have a great week! Regards Vitez
Long
by Vitezabraham
GBPJPY Swing trade + Fundamental driversHello Traders! We approached a significant support zone also having a strong fundamental upside bias. Enter at trend line break or the breakout of the zone. Stops below the zone. Take profit at the highs. Fundamental Drivers Great British Pound (GBP) Fundamental Bias: Weak Bullish 1. The Monetary Policy outlook for the BOE The BoE took a hit to their credibility with their November policy decision when the bank voted 7-2 to keep rates on hold and also had a very clear U-turn among some of the recent hawkish comments from the likes of Bailey and Pill. Going into the meeting markets had fully priced a 15bsp hike in 4Q21, and even though analysts and economists were divided on whether that hike would take place in Nov or Dec the bank’s statement and press conference has now seen market expectations for a hike pushed back to Feb 2022. This came from the bank’s dovish tilt regarding growth, inflation as well as a change or tone which said that hikes would be appropriate in the coming months if the labour data comes in line with the bank’s projections. We were anticipating a violent repricing on med-term rate expectations for the past few weeks now, stressing that rates markets were too aggressively priced, but the U-turn from the bank regarding the near-term was surprising and means incoming labour market data will be key in gauging when lift off will occur. When asked about their obvious U-turn, the bank pushed back and said they won’t endorse market rate pricing, but external member Saunders did just that in early Oct. Overall, the bank delivered a dovish tone, and took a big hit to their credibility, which means markets will be a lot more careful with jumping the gun on their forward guidance going forward. A key reason why we have not changed our outlook for the GBP to bearish after the Nov BoE meeting is because the forecasts for both growth and inflation were conditioned on an implied bank rate of 1% by end 2022, which seems highly unlikely. Thus, after this week’s repricing, if rates price in less than 1% by 2022 then the conditioned path for growth & inflation should be higher again all else being equal. 2. The country’s economic developments The successful vaccination program and subsequent reopening of the UK economy was a big positive for Sterling from the start of the year, but with a lot of those positives already in the price and some expectation of stalling growth, the upward momentum will get tougher in the near- term. Also, alongside the BoE’s dovish tilt incoming economic data will be crucially important for markets to gauge the rate path. This incoming week we have the Sep labour report, and with the BoE’s comments that they want to see what the labour market does before acting on rates it means this print will be important, not as important as the October report we get in Dec but definitely one to watch in the week ahead. 3. Political Developments Even though a Brexit deal was reached last year, some issues like the Northern Ireland protocol remains, and with neither side willing to budge it seems like these issues are here to stay for now. There has been heated rhetoric from both sides with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, these are just threats, but any actual escalation could increase the odds of seeing so risk premium built into Sterling. Also keep the fishing challenges with France in mind as well. Japanese Yen (JPY) Fundamental Bias: Bearish 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. With bond yields looking a bit stretched at the current levels any decent mean reversion is expected to be supportive for the JPY, so it remains a key asset class to keep track. Have a great week! Regards Vitez
Long
by Vitezabraham
AUDJPY Swing trade + Fundamental DriversHello Traders! A technically and fundamentally appealing trade is developed in the Australian Dollar Against the Japanese Yen pair. Enter at lower timeframe trend line break. Stops below the last supply zone. Take profit at the swing highs. Fundamental Drivers: Australian Dollar (AUD) Fundamental Bias: Neutral 1. The country’s economic and health developments There are 4 key drivers we are watching for Australia’s med-term outlook: The virus situation – a Q3 GDP contraction is priced in, so eyes are firmly on Q4 data to see whether a strong rebound is possible. Look out for any good news with more reduction of lockdown measures. China – the slowdown in China is important as it’s Australia’s biggest export destination. Markets are watching to see whether the CCP and PBoC steps up with stimulus for the economy and possible support for the real estate sector. Politically, the recent defence pact between the US, UK and Australia could see retaliation from China against Australian goods. Commodities – Iron Ore, (24% of exports) have continued its drop, and to make matters worse we’ve seen Coal (18% of exports) prices are pushing lower alongside it. This is negative for Aus terms of trade and definitely a risk to keep on the radar in the sessions ahead. Global growth – as a favourite risk proxy, the market’s current question about whether we see a reflation in Q4 will be an important consideration for the AUD. 2. The Monetary Policy outlook for the RBA The RBA’s November decision can be summed up as hawkish in deed but dovish in word. The bank abandoned YCC as markets suspected as they didn’t choose to defend their target in the days leading into the meeting, and they also abandoned their date-based forward guidance that said a lift off in rates would only be appropriate in 2024, by rather saying that conditions for a hike will take ‘some time’. However, Governor Lowe tried his best to sound as dovish as possible by saying that they are prepared to look through temporary spikes in inflation and that market pricing for a hike by 2022 is far away from where their outlook is and is highly unlikely. Even though not all market participants would agree, we think the outlook for growth, inflation, employment and wages do suggest that a late 2022 could be possible, especially if the economy sees a solid bounce back from covid. However, for now, the bank has stuck to an overall dovish tone. Given the importance of wages to their inflation outlook, keeping close track of this week’s Q3 wage growth will be very important for the AUD. 3. Developments surrounding the global risk outlook. As a high-beta currency, the AUD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the AUD in the med-term, but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. Japanese Yen (JPY) Fundamental Bias: Bearish 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. With bond yields looking a bit stretched at the current levels any decent mean reversion is expected to be supportive for the JPY, so it remains a key asset class to keep track. Have a great week! Regards Vitez
Long
by Vitezabraham
GBPJPY Swing trade that you can take now + Fundamental driversHello Traders! We approached a key level and managed to break an hourly trend line that's enough for a technical entry also having a strong upside bias for the pair. Entry at market or buy stop order at the break is valid. Manage risk below the last significant support area. Fundamental Drivers: Great British Pound (GBP) Fundamental Bias: Weak Bullish 1. The Monetary Policy outlook for the BOE The BoE took a hit to their credibility with their November policy decision when the bank voted 7-2 to keep rates on hold and also had a very clear U-turn among some of the recent hawkish comments from the likes of Bailey and Pill. Going into the meeting markets had fully priced a 15bsp hike in 4Q21, and even though analysts and economists were divided on whether that hike would take place in Nov or Dec the bank’s statement and press conference has now seen market expectations for a hike pushed back to Feb 2022. This came from the bank’s dovish tilt regarding growth, inflation as well as a change or tone which said that hikes would be appropriate in the coming months if the labour data comes in inline with the bank’s projections. We were anticipating a violent repricing on med-term rate expectations for the past few weeks now, stressing that rates markets were too aggressively priced, but the U-turn from the bank regarding the near-term was surprising and means incoming labour market data will be key in gauging when lift off will occur. When asked about their obvious U-turn, the bank pushed back and said they won’t endorse market rate pricing, but external member Saunders did just that in early Oct. Overall, the bank delivered a dovish tone, and took a big hit to their credibility, which means markets will be a lot more careful with jumping the gun on their forward guidance going forward. A key reason why we have not changed our outlook for the GBP to bearish after the Nov BoE meeting is because the forecasts for both growth and inflation were conditioned on an implied bank rate of 1% by end 2022, which seems highly unlikely. Thus, after this week’s repricing, if rates price in less than 1% by 2022 then the conditioned path for growth & inflation should be higher again all else being equal. 2. The country's economic developments The successful vaccination program and subsequent reopening of the UK economy was a big positive for Sterling from the start of the year, but with a lot of those positives already in the price and some expectation of stalling growth, the upward momentum will get tougher in the near- term. Also, alongside the BoE’s dovish tilt incoming economic data will be crucially important for markets to gauge the rate path. 3. Political Developments Even though a Brexit deal was reached last year, some issues like the Northern Ireland protocol remains, and with neither side willing to budge it seems like these issues are here to stay for now. There has been heated rhetoric from both sides with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, these are just threats, but any actual escalation could increase the odds of seeing so risk premium built into Sterling. Also keep the fishing challenges with France in mind as well. 4. CFTC Analysis Latest CFTC data showed a positioning change of +94 with a net non-commercial position of +15047. Keep in mind the CFTC data released on Friday was only updated with positioning data until Tuesday 3 Nov, which means the big flush lower in Sterling after the BoE meeting will only be reflected in next week’s data. Thus, we would anticipate seeing a sizeable increase in net-short positioning following the Pound’s reaction after the meeting. With the week light on the calendar front, markets will turn attention to incoming comments from Governor Bailey (sigh). Apart from that we’ll be keeping a close eye on key technical levels to determine whether downside momentum could be stalling out. Have a great weekend! Regards, Vitez
Long
by Vitezabraham
NZDJPY Swing trade that you can take now + Fundamental Drivers Hello Traders! We approached a significant support area and having a strong fundamental and seasonal upside bias for the New Zealand Dollar against the Japanese Yen. Enter at market is possible manage risk below the support area. Fundamental Drivers: New Zealand Dollar (NZD) Fundamental Bias: Bullish 1. The Monetary Policy outlook for the RBNZ: At their Oct meeting, the RBNZ delivered on expectations to raise the OCR to 0.50%. As the hike was already fully priced, the lack of new hawkish tones we saw a textbook buy-the-rumour-sell-the-fact reaction in the NZD pushing lower. There was additional focus on the RBNZ expecting headline CPI to climb above 4 percent in the near term, but the most important part of the statement was the subsequent comment that the bank still sees CPI returning towards the 2 percent midpoint over the medium term and that ‘the current COVID-19-related restrictions have not materially changed the medium-term outlook for inflation and employment since the August Statement’. Thus, despite recent covid concerns, inflation concerns and energy concerns, that part of the statement acknowledged that nothing has changed in terms of the bank’s OCR projections released at the August meeting. Unsurprisingly, the bank also stated that their future rate path is contingent on the medium-term outlook for inflation and employment, which means keeping close tabs on incoming data and the virus situation will remain a key focus for us in the weeks and months ahead. With the bank now being the first to hike rates among the major central banks and sitting on the highest cash rate among the majors, and with an OCR projection that is still head and shoulders above the rest, the bias for the NZD remains firmly titled to the upside, and as rates keeps rising, the currency’s carry attractiveness will be a key focus point for the NZD in the months ahead. 2. Developments surrounding the global risk outlook: As a high-beta currency, the NZD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term, but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver 3. Economic and health developments: Virus cases can still have an impact on NZD sentiment, which means the fact that NZ virus cases is at record high levels is something to pay attention to. For now, it’s had very limited impact on the NZD due to the NZ government abandoning their covid-zero strategy and since virus risks have been downplayed by the RBNZ, but further escalation leading to more lockdowns will be important to keep on the radar. 4. CFTC analysis Latest CFTC data showed a positioning change of +4955 with a net non-commercial position of +13861. The NZD reflects net-long positioning for both large speculators as well as leveraged funds but are nowhere near stress levels right now. With the NZD now sitting on the highest cash rate among the major economies and with expectations of that to continue to rise we think carry attractiveness will become a key focus point for the NZD in the months ahead and should mean a favourable upside bias for the NZD against the low yielders like JPY and CHF. In the short- term though, as we mentioned above, the virus situation could see some of the recent upside given back, and also keep overall risk sentiment in mind which saw the NZD failing to benefit from the stellar quarterly jobs data released last week. Japanese Yen (JPY) Fundamental Bias: Bearish 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. With bond yields looking a bit stretched at the current levels any decent mean reversion is expected to be supportive for the JPY, so it remains a key asset class to keep track. 3. CFTC Analysis Latest CFTC data showed a positioning change of -588 with a net non-commercial position of -107624. The past few weeks of price action in the JPY was mostly driven by the excessive moves we saw in yields on the US side but was also exacerbated by risk on flows and rising oil prices which is a negative driver for Japan for its terms of trade. Even though the bias for the JPY remains firmly tilted to the downside, the moves across JPY pairs is arguably still looking stretched, and with both large speculators and leveraged funds firmly in net-short territory the odds of some mean reversion has increased. We would prefer waiting for some of the froth to mean revert before looking for new JPY shorts. As always, any major risk off flows can still support the JPY, especially with quite a sizable net-short position still built up in the currency for large speculators as well as leveraged funds, but rates have been the key driver in the short-term. The recent violent repricing in bond markets saw a huge push lower in yields that has supported the JPY, if that continues and we also see some risk off tones keep the stretched positioning in mind as it could see a big unwind if conditions align correctly. Have a great weekend! Regards, Vitez
Long
by Vitezabraham
Will USDJPY Consolidate This Week? 112.00 A Likely DestinationThis week we might witness USDJPY move up and down as many central banks announce their policies and NFP reading as well. The 115.000 strong monthly resistance is yet to be tested by this pair! Its surprising with such a powerful strong uptrend it was not able to test this level. However this week shall the descending channel break, we can see the pair climb and come near that level. Positive RSI divergence on 4H indicates that an upmove might be on the horizon. However as traders, we look for confirmation. In this case, we need the higher high on 4H chart to break (4H candle must close above it), then evaluate our entry points for a LONG trade based on the RISK TO REWARD (RR) ratio. Our potential take profit target in this case would NOT be 115.00 level! infact its ideal if we target the next HIGHER HIGH on the 4H chart as our target. It all depends on the RR as 1:1 is an ideal target Shall the above scenario finish taking place or if it does not take place at all, we can look to take this pair SHORT. Again not without confirmation!. We need the 4H candle to close below 113.00 and to target 112.00. Once the break takes place, the RR needs to be evaluated, if feasible a short entry could be taken. All in all its a two way scenario for USDJPY this week. Meaning it will either rise towards 115.00 then aim to hit 112.00 or it will just keep its descend towards 112.00 level For those of you who want to take this pair beyond 115.00, its a very risky move for the following reasons: 1. The pair is too overstretched and a consolidation move might likely take place. many traders based on fundamental market picture would prefer to enter LONG once the price retraces at around 112.500 to 112.00 level. 2. Look at the first point: see the word FUNDAMENTAL MARKET PICTURE? yes its based on purely fundamental analysis of the markets. as for us technical traders, confirmation is the key. in this case we need to wait monthly candle close above 115.000 then evaluate to go LONG based again on RR The month of November would likely be interesting for USDJPY. Based on the fundamental picture its likely 115.000 would be broken this month as inflation and RISK OFF mood drives the markets. THIS JUST REPRESENTS MY ANALYSIS ON THE OUTLOOK OF THIS PAIR. TRADE SIGNAL WOULD BE POSTED IN A NEW POSTVSHALL ALL THE CRITERIA BE SATISFIED
Short
by FX618Analysis
GBP/JPY - Time for a correction?The pound has made some incredible moves against the yen in recent weeks, following the breakout from long term consolidation through the top of the descending triangle, after which it surged to more than five-year highs. The rally in the pound has been driven by rapidly shifting interest rate expectations, with markets now pricing in four or five rate hikes by the end of next year in order to combat very high inflation, which is expected to peak above 5% and average 4% over the next 12 months. Naturally, when compared to the yen where interest rates have been rock bottom for so many years and the prospect of that changing looks slim, it's easy to see why the moves in this pair have been particularly powerful. But the pair now finds itself in an interesting position. So much is now priced in for the Bank of England, arguably too much, that should it follow that path, traders appear to be of the view they'd be committing a policy mistake which they'll be forced to reverse. So barring another unexpected spike in inflation, or a sudden burst of economic activity that looks unlikely given the squeeze we're seeing from various sides, what exactly is going to deliver those further sterling gains? That's not to say it isn't possible, particularly against the yen, but the opposite may be more likely after such an extraordinary run if we do see expectations pared back a little, even some profit-taking on those earlier moves. The 4-hour chart may give an idea of what's to come. The consolidation pattern we're currently seeing isn't perfect. There appears to be support around 156 but it's not completely clear. Alternatively, it could be trading in a descending channel, a sign of consolidation. A significant break of 156 may indicate a broader correction, while a break of the channel would suggest it's quite a strong move. A move above the channel would suggest the pound has new life and sight set on those recent highs.
by OANDA
2
Breaking cooking in AUDJPY Clarity around the nucleus of the swing designed to restrain It is an interesting breakout we have here in the diagram, representing a major impulse (sounds nice, right?!), and so the origin is a hawkish fed and evergrande mini deal; I want to clear something up as I know there is a lot of panic on the wires with some looking at the lows. There is a major classification problem; For those technical traders that understand the creation of an outside candle, it is a way to restrain extremes and neutralise opponents via the open trap. In this position, a lot stood like a dear in the headlights into Fed with the majority of threats: one clearly consists of the taper advance, the other in evergrande etc. So where does the restrain come from? Well by blocking 78/79 then possibly a momentum break through 79 quarters and getting into 80. The whitespace is clear, the difficult work has been done, the above mentioned diversions opened up an attacking radius!
Long
by ridethepig
3
150 in the crosshairs for USDJPYThe best move in FX, since 2020 was the idea of early development of the base in USDJPY, let's start with a quick chart review which really got into the heart of the matter. This update is much more about the technical configuration and how to work with an impulsive move. Unlocked. As is now becoming clear to many analysts, USDJPY is playing towards the 150 macro level, this is in a certain sense an impulsive leg; the C leg of an ABC correction, would bring into its own 5-3-5 majority. Fresh sellers will refrain from stepping against this train. Rightly so, because here would be the typical example of false prevention, which only manages to create new weaknesses eg from early soft sellers which will provide fuel to play against the isolated highs. Thanks as usual for keeping your support coming with likes, comments and etc!
Long
by ridethepig
9
TRICKY USDJPY SHORT MIGHT BE A TRAP! TRADE WITH CONFIRMATION! Take a look at the above image of USDJPY daily TF chart. Its clearly visible that there many hurdles that USDJPY needs to clear before aiming low. In this case, the main chart that shows USDJPY 4H, shows that once the trendline breaks it will likely aim low. Due to this many traders might get trapped should they SHORT USDJPY once this trendline breaks. As a probable consequence, the price might likely start to reverse against their trade and head back up. A CONSERVATIVE AND PATIENT approach would be to look at the bigger picture and scan for any hurdles that might cause the price to limit its downmove. in this case, scanning the daily chart (have a look at the attached image up). On this chart there lies a Monthly pivot and just below it lies the daily EMA. these two factors have been proven to be a strong support. To trade this setup with confirmation would be to wait for the DAILY candle to pierce and close below D EMA and Monthly pivot. Once this happens a short trade can be taken on 4H charts depending on the weekly pivots. The target which would likely be tested would the area near 110.000 region. Shall there be any updates, i will post the entry requirements below
Short
by FX618Analysis
ridethepig | USD with the trump card!Will try to keep this one short and sweet.... a strong move from buyers here is decisive, sellers have given up their parry and have really been outplayed ... you should never be a slave to one side !!! The tempo is clearly in favour of bulls. The immediate threat is 114 with 118 above. Consider that above 118 there is very little in terms of resistance and will allow bulls to control all the way up till 150. A tactical fines, once thought that risk-off flows would be preventive, has been uncovered that USD is the ultimate haven and JPY is at a disadvantage. As usual thanks for keeping the feedback coming...
Long
by ridethepig