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LONG USDJPY: ANOTHER BOJ OUTPERFORM CASE - 28TRN GOVT STIMULUSAnother argument for the BOJ outperform case - Post BOJ Buy $Yen @MRKT 111tp: 1. We know BOJ and JPY Govt Abe/ Aso have had many meetings post-brexit and as it follows the JPY Govt have announced today that they will deliver a fiscal stimulus package of 28trn - which was to the very right of the curve (10-30 was talked about). - This in mind, imo it is rational to extrapolate that 1) surely if the JPY govt are choosing a tail end stimulus package (aggressive), BOJ will be inclined to do also? Given that it is the BOJ remit for economic targets like inflation, not the governments - BOJ wouldnt want to be seen as dropping the egg would they e.g. govt does as much as it can but BOJ only midly eases - doesnt make sense? Especially given the relationship between kuroda/ aso/ abe it would almost be impossible. - 2) The BOJ will know/ see that the JPY Govt are taking the "extreme" side of measures, so once again this puts the BOJ under-pressure to do the same as they dont want to be seen as "letting the side down" especially as it is the BOJ who really has the power to change things - the Fiscal package is rather an indicative/ nice gesture of the govts willingness to help - rather than any real hard easing when you consider the Govt package is likely to be 28trn a year but the BOJ purchases/ injects 80trn A MONTH to its monetary based in JGBs - thats 960trn a year. So 27trn govt vs 960trn BOJ - is the govt really making an impact or are they instead signalling their commitment/ putting pressure on the BOJ? I think so. Under-performance case: 1. Perhaps less meaty, but nonetheless a valid point - Japan, JPY Govt and BOJ have lived with low inflation/ deflation for the past several decades and no "extreme" action has been taken to resolve it (well not enough to fix the problem anyway) so this pressure on the BOJ we talk about above - is it real? or is it a theoretical pressure that they "Must" hit their targets? - If history predicts the future then yes, it is a theoretical economic pressure - they haven't hit the target for 20yrs so why would they do measures to hit it now? There's no public pressure, im sure theyre happy consuming at lower prices - unlike with high unemployment. - Off topic but it would be interesting to see a Japan with high Unemployment - an economic indicator that causes civil unrest (Greece riots) and is a necessity to be solved for the wellbeing of any nation - thus my bets are if unemployment was at 15-20% (similar comparison to deflation) for the past 15yrs something drastic WOULD have been done a long time ago, or be done on Friday to fix it. After all, theres no driver to fix something that doesnt really need fixing is there? Think about the last time you went to extreme measures to fix something that wasn't much of an issue...
Long
by QuantumLogicTrading
11
BUY USDJPY @104 & SELL GBPUSD @1.33: RISK-ON, POLITICS, BOJ, BOEThe Federal Reserve's regulatory point man said work to address the lessons of the 2008 financial crisis won't be complete without better regulation of short-term funding both inside and outside the banking system. St Louis Fed President Jim Bullard may be the Fed's new super dove, but he's no pessimist, he says. Bullard is the lone Fed official forecasting just one additional rate increase, and expects modest growth over the next two and a half years. But he reiterated Tuesday he's not expecting the economy to head south. Trading Strategy 1. Given this I remain bullish on the $ in the medium term, despite this spike in risk-on which IMO is unlikely to last more than 2wks. In the immediate term I like long $yen as the best play ATM vs other expressions - with a target of 109, entry at 104 as 1) the markets have finally signalled they are ready for a recovery bull run, post the brexit risk-off/ safe haven rally - largley on the back of CB stimulus. I believe USDJPY has been the most sold risk-on asset, thus it is now ripe for buying; 2) JPY fiscal stimulus is likely to come; 3) BOJ is likely to deliver 10-20bps of cuts to its interest rate 4) we have broken the 104 "brexit seller resistance level" which has held since the vote - this break imo means we can now move to 109+ as the recovery leg before resuming lower; 5) the Fed Funds Rate curve continues to steepen across the curve but particularly aggressively in the front end (yesterday 10ys adding 5%) and as a result implied probabilities of hikes continue to rally across the 2016/17 tenors (Dec hike now 33.7% vs 29.2%Mon); 5) check the attached posts for long $jpy support 2. Secondly, short GBP$ is a trade i am closely eyeing.. I am a 70% seller at 1.32 (90% at 1.35) - short GBP rallies is the preferred trade as the BOE is likely to deliver easing in Aug that will drive us down to the 1.25 terminal rate that I have predicted - thus i am hoping we get some "poor information money" flows into GBP up to 1.34/5 going into Friday as 1) UK Political Uncertainty is eased - as Theresa May is the New PM starting Wednesday; 2) GBP buying on Thursday if the BOE doesn't cut rates, whilst I (and the market) believes an august cut is the likelihood instead, given the aggressive GBP selling these past weeks it is prudent to assume quite a large amount of money may/was be betting on a July Cut thus if this "disappoints" some of the market we could see cable trade higher to 1.34+; 3) Long GBP is the risk-on trade, so if risk holds up/ carries on rallying we could see GBP$ take us to 1.34+ - CB and Fiscal stimulus + the fact risk has been depressed for so long, i believe risk has the momentum to rally until the end of the week at least (next risk-rally then looks to 28th July for BOJ stimulus?) 3. The long $Yen and short GBP$ also acts as a dynamic hedge as the long UJ is the risk-on coverage, with the short cable the risk-off half - combining both semi-hedges your exposure, something i like to do when trading. FED Tarullo Speech Highlights - "the conditions for destructive runs that threaten financial stability could exist even where no institutions that might be perceived as too-big-to-fail are immediately involved" FED Bullard Speech Highlights - Bullard: An unemployment rate around 4.7%, gross domestic product growth of 2% and the Fed' preferred inflation gauge, the personal consumption expenditures index, at 2%. - "If there are no major shocks to the economy, this situation could be sustained over a forecasting horizon of two and a half years" - "we have no reason to forecast a recession given the current state of the US economy"
Long
by QuantumLogicTrading