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Long$yen

USDJPY: BOJ IN FOCUS - G20 KURODA & REUTERS ANALYST EXPECTATIONS28/29th June BOJ Meeting Expectations by 27 analysts polled by Reuters: 1. 23/27 (85%) expect easing from the BOJ. - The Median Analyst expect a 10bps cut to the headline interest rate to -0.2% and a Yen10TRN Extenstion to the BOJ's monetary base target to Yen90TRN a month (JGB and ETF Purchases). - One analyst expects easing in September, two in October and One sometime next Year. 2. Whilst the Median view is 10bps and 10trn extension, further to the right of the easing curve we observe some top investment banks expecting a more with GS forecasting a 20bps cut and an extension to the Monetary base from somewhere between Yen10-20TRN My View: 1. I am concur with those views further to the right of the easing curve - i expect BOJ to deliver 20bps and 10-20trn increase in monthly JGB/ EFT Purchases as the stagnant inflation situation (-0.4%National/ -0.5%Tokyo) requires some aggressive policy. - Reason for this thinking is that currently the Monetary base has been steady at Yen80trn for some time and the rate has been at -0.10% since January - so realistically is a 10trn increase and 10bps decrease going to be sufficient? - Lets look at the maths - a 10trn increase is 12.5% and a 10bps drop takes us to -0.2% - personally i do not think a 12.5% increase and a slight adjustment to the key rate will bring JPY underlying inflation into a uptrend - if 80trn and -10bps can't, i dont think 90trn and -20bps can - they need more e.g. 100trn and -30bps - a 25% increase in monthly monetary base + a significant decrease in the interest rate - bare in mind that the SNB has rates at -0.75% so the BOJ has a lot of room relatively to cut futher, it's not like its on the edge of economic possibility already when other central banks are already more aggressive. 2. Now whether they will deliver to the right/ aggressive side is up for question, as BOJ/ Kuroda have always been on the conservative side. Though in recent times the BOJ have come under-pressure by JPY Govt/ Abe so imo if they will ever deliver big - it will be now. - Kuroda shrugged off heli money (below) but he did communicate that there could/ should be a double effort from monetary and fiscal policy in order to increase the multiplier effect - which bodes well - we could see dramatic fiscal and monetary policy. Even if we fall short of cash dropping out of aircraft. Kuroda's comments at G20: - "Bank of Japan Governor Haruhiko Kuroda said on Saturday he would ease policy further if necessary to achieve its 2 percent inflation goal, while reiterating a commitment to continue with the current stimulus until prices are anchored there." - "If the economy's (recovery) trend continues, leading wages and prices to rise in a virtuous cycle, which is continuing, prices will eventually rise to the 2 percent price stability goal," - "We always examine risk factors for the economy and prices and will take additional easing steps if necessary to achieve the price stability goal. I'll explain that together with Japan's economy, prices and monetary policy at this meeting." - "Uncertainty will continue, including negotiations between Britain and the EU, which will take years. So we will be paying attention to such things," - "If it means that central banks are directly underwriting government bonds, or managing monetary and fiscal policies as one, that would be prohibited in Japan as well as other advanced economies, as lessons from history tell us," - "If governments utilize fiscal policy while central banks ease policy from the economic and price viewpoint, that would boost the multiplier effect on the economy. This so-called policy mix is nothing wrong as macro policy.
by QuantumLogicTrading
2
USDJPY: TECHNICAL ANALYSIS - MA, KEY SUPPORT, STANDEV, IV>HV, RRYen$ Technical analysis - Bullish but fundamentally driven this week: Key level close: 1. On the daily and weekly we closed above the 2nd strongest pivot point of recent times at 1.055 - this is very supportive as historically this is the strongest level (next to 100/101). MA: 1. We trade above the 4wk ma and the 3m MA is acting as strong support (black line) - this is a supportive/ bullish indication but we have been below the 6m MA since the beginning of the year as the 2016 safe havens have outperformed - this indicates we are seeing a risk-recovery which concurs with initial thoughts IV/ HV: 1. Realised Vols have also unsurprisingly come off, this is bullish but bare in mind that brexit has distorted some of the longer dated HV (still high) and caused the spike in the shorted dated HV. Relatively, Implied vols are steepening higher than HV - with 1wk, 2wk and 1m Implied vols trade at 23.84%, 19.42%, 15.28% vs HV 1wk 2wk 1m at 6.35%, 13.16%, 17.18% - so IV is greater than HV across the front end which is bearish - though imo this shouldnt be considered so as BOJ event vol premiums are likely the culprit for the curve steepening - especially at the 1wk-2wk tenors (vs realised) so this isnt necessarily bearish. Deviation Channels/ Support levels: 1. We Trade close to the top of the 6m deviation channel at 1.0700 as we witness a recovery rally, this could be condisered bearish as we could see resistance here, but as i said i think fundamentals are more at play here than the techs. Looking at the 12m SD channel, this is more appropriate and shows us trading just above the average 12m price at 105- hence there is definitely more room for upside to 110 and we have just crossed the middle regression line implying we are entering some yearly upside deviation now, with the +2SD resistance level at 110 which is in line with the price support level at 1.09-11. Risk-Reversals 1. 25 delta Risk reversals trade bearish for $Yen, with current at -1, 1wks at -0.4 and 2wks at -0.2 and 1m at -1 - this suggest the $yen has a slight downside bias but is potentially searching for direction going into the big BOJ meeting on the 29th - investors are not committing much to a delivery or non-delivery, as the 1wks trade nearly flat at -0.4 - maybe this will change over the course of the week, but it indicates that we may see $yen trade calmly before the storm as a pose to heavy positioning before the event. - Though 3m risk reversals trade with a clearer downside bias at -1.7 which shows the market expects $Yen to trade lower in the 3m term- likely a result of investors expecting the risk-off trend of 2016 to continue. Option Demand: Significant put vol demand around the 105.5 pivot point, highly likely to be investors betting on a bearish turning on the break of the level (though expiry in 2 days). Going forward we see more call demand, on Wednesday we have large 106.25 notional and thursday 107.25 notional respectively - likely buying a pre-event $yen breakout as investors usually prince in too much of a BOJ delivery. *Check the attached posts for indepth fundamentals*
Long
by QuantumLogicTrading
USDJPY: LONG UPDATE - RENEWED JPY FISCAL STIMULUS SPECULATION?I posted earlier with my 107 USDJPY breakout trade (see attached post) - one of the reasons I said to long USDJPY on the 107 break-out was due to JPY Govt stimulus speculation. In the last few hours we have seen fresh speculation of the JPY stimulus, with JPY20trn now being discussed/ proposed to be on the table - this renewed rhetoric is nothing but positive for the 107 breakout long trade i posted a few hours ago and supports it as YEN20trn is approximately $200bn, which is certainly enough new liquidity to give confidence to markets and spur risk markets onto fresh highs - further this JPY Govt stimulus is speculated to be combined WITH BOJ easing, so markets get a compounded risk rally since there are two potential drivers (BOJ cut rates by 10-20bps + add to maturity/ purchases of JGB and EFT). Plus today after seeing the RBNZ's dovish economic assessment (where an Aug cut is almost 100%), this gives risk markets even more fuel thus encouraging $yen to trade to the 109-111 levels i expect - though BOE K. Forbes hawkish comments negate some of this. The new JPY Fiscal stimulus speculation: 1. JAPANESE GOVERNMENT CONSIDERING 20 TRILLION YEN STIMULUS PACKAGE SAYS KYODO - "The government initially envisaged compiling a stimulus package of somewhat more than 10 trillion yen . But the size is likely to double as the package will now include projects for fiscal 2017 and beyond and increase "zaito" low-interest government loans by 6 trillion yen," Kyodo reports. 2. "The government initially envisaged compiling a stimulus package of somewhat more than 10 trillion yen . But the size is likely to double as the package will now include projects for fiscal 2017 and beyond and increase "zaito" low-interest government loans by 6 trillion yen," Kyodo reports. 3. "The stimulus could be even larger, they report. And able will look for the rubber stamp from the Cabinet in early August. About half will be earmarked for infrastructure." Trading strategy going forward: 1. Trading strategy remains the same from the 107 breakout post that i made earlier e.g. 109TP1, 111TP2 - all that has changed from the post before is that the strategy has been reaffirmed/ strengthened upon this renewed JPY stimulus speculation , given this was one of the drivers i cited to move USDJPY to the 109 then 111 level once the 107 confirmation level was broken. - In early asia trading, as yesterday, net risk sentment remains stable with safe havens gold, yen and bonds down as well as risk, though risk down slightly less. For the day, I expect risk-on sentiment to win as Thursday historically is the best day for stocks (before going into the friday end of week sell-off) + post market Wednesday some large firms posted outperforming earnings which should continue helping the risk appetite move higher (Intel + Morgan stanley beating EPS and revenue forecasts) when the main LDN and NY sessions get underway down the line. *Check the "USDJPY: BUY THE BREAKOUT" post attached for more details on the trade discussed above posted 7 hours ago*
Long
by QuantumLogicTrading
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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
SELL NZDUSD @0.73 - TP 700PIPS: BREXIT, RBNZ, FED & USDJPY HEDGEShort NZDUSD is in my top 2 FX Trades for several reasons: 1. NZD is considered the riskiest G10 currency cross, so NZD trades weaker in risk-off markets, or when equities/ SPX trade lower (you can see the high correlation with SPX at the bottom of the graph). - With Brexit occurring last week, global risk has increased, this is especially the case for NZD due to commonwealth connections. Therefore NZD is likely to come under pressure in the future as risk-off sentiment continues to dominate, as the US Election nears, Global growth worries continue (Japan, Europe, China) and Brexit/ uncertainty about further EuroArea exits continues to intensify - we can see Gold and US Treasuries continue to gain supporting the risk-off view and thus supporting selling NZD. Also, risk-off encourages $ buying as a safe haven deposit on the Brexit backdrop. - Further, going into earnings season next week, historically risk currencies (NZD) perform poorly as investors seek safer assets to hedge against earning surprises, thus this helps NZD selling and USD buying. Plus, most investors will want to hold some $ cash in order to fulfil their earnings based equity trading, so this also helps the short Kiwi$ trade by increasing $ demand relative to NZD. 2. The RBNZ Meeting on the 10th August is likely to be dovish and I 80% expect a rate cut of 25-50bps from 2.25% to 2.00%-1.75% , as;1) Brexit risks are weighed in on and potentially priced into a rate decision, in follow up to the supportive/ dovish statements from RBNZ members immediately after the Brexit decision and 2) NZD Macro Environment has performed poorly since the March Rate cut from 2.5% to 2.25% e.g. The last prints still consistently dragging: Retail Sales at 1.0% vs 1.1%qoq & 0.8% vs 1% Q1qoq; CPI 0.4% yoy, 0.2% qoq; Unemployment Rate at 5.7% vs 5.5%. 3) the RBNZ has a historical pattern of cutting their rate every third meeting, and this August meeting is the third meeting. Plus it will have been 5 months since their last cut in March - this also historically is a large time for a another rate cut as previously to that the RBNZ cut in December, Dec-Mar which was only 3 months, and before that in october (oct-dec) which was 2 months so the odds are good if NZD data continues to be bad given the time since the last cut of 5 months is relatively large. And the gap since their last meeting at June 10th is 2 months which is the biggest gap they have. - Risks to the RBNZ Rate cut view are that;1) Brexit risks are de-priced due to UK Political skulduggery pushing the likelihood of the brexit into 2017 (if at all) 2) Their Inflation, Employment and GDP data manage to recover and show structural signs that the rate at 2.25% is sufficient for continued economic recovery e.g. NZD May Employment Change print surprised to the upside at 1.2% vs 0.8%, and their June GDP outperformed for Q1 at 0.7% vs 0.5% qoq & 2.8% vs 2.6% yoy. So if the CPI and employment data due to be released before the RBNZ August 10th meeting shows a continued/ structural/ aggressive recovery this will reduce the likelihood of a rate cut. Nonetheless, my money is that this isn't the case (with data continuing to trade subdued) and I therefore expect them to provide reassurance to markets with a strong dovish tone, and a 25bps cut - citing Brexit and non-outstanding economic indicators as the impetus for the changed policy. *It should be noted, in order for me NOT to consider a 25bps cut likely in August we would have to see an outstanding CPI and employment print e.g. CPI 1.0%-0.8% (0.4% last), and unemployment 5.3/4% (5.7% last), given it has been 5 months since the last cut - the RBNZ would be expecting to see such figures to consider the current rate of 2.25% as working/ sufficient.
Short
by QuantumLogicTrading
13
BUY USDJPY: SUP LEVEL @105.5 & VOLATILITY SELL-OFF @ HIGH LEVELSBUY USDJPY @106.5 or @107.0 - SL @105 - TP @109-11 based on: $YEN's historical most important support level - The 105.5 Key level will more than likely hold as it has many times before - At 105.5 there are 3 significant UNSUCCESSFUL tests of the level over the last 3 years thus it is a great entry point. Also another plus is if you look at the monthly chart you will notice 105.5 is the 2nd most important level in $Yen's 20y+ history, the 1st most important/tested is the 101 level. - Further, over the last 3 years the level has been tested 4 times in total and it only broke once when USDJPY rose to 127 so that means LONG at this level has a 75% chance of success (based on the simple discrete math). - Plus, around 105.5 at 106 and 106.5 these also provide "mini" strong support levels which i think are great, low risk entry points for long positions. Normal Distribution and High Price Standard Deviation Volatility - as you can see the weekly bar has closed below the 5 year -3SD (and -2SD 2.5year) once before, by the red bar 5 weeks ago which was also at the 105.5 support level- at which point USDJPY0.02% rallied back up to 111.5 from 105.5 after closing below the -3SD and -2SD line and on the 105.5 so we could see topside like this again. - in addition to this, it is worth noting that the 5y -3SD blue line that was violated but rejected 5 weeks ago and is being tested again, based on normal distribution theory, says that prices touching this line have a 99.5% probability of reverting BACK UP towards the mean at 122.5. The -2SD 2.5year line that was also violated has a 95% probability of retracing up towards the mean at 126. Historical and implied volatility at all time highs - a reversal - Historical volatility across the board (5,10,20,30,60) is trading at all time high levels now and at some point these levels have to come down, investors cant keep pushing vols higher, which in turn, means selling of UJ must come to an end soon and we should see an upward recovery run. - The same is true about Implied vols which are trading at 15.75% which is in the (upper) 90th percentile of the last 2.5 years of days, meaning implied vols 90% of the time have been lower than this - thus a reversal is more likely at these levels. HV is likely in the 90%tile or greater also - Usually a sell-off in volatility precedes buying of UJ. - See more info on vols here: www.tradingfloor.com Downside analysis 1. The obvious risk of the Long UJ play are that the 105.5 level doesn't hold, in which case i believe the long squeeze caused, as a result of all long SLs being hit causing a cascade of selling could take us down to 102/3 - however this is easily avoided by keeping tight stops at 104.5-`105 dependent on your risk appetite. - even with a 150pip SL it still returns us 3x returns with a TP target of 111+ 2. The markets may trade risk off in the coming weeks as the macroeconomic envrionment is filled with uncertainty e.g. FOMC, BOJ and UK EU Referendum, in which these events are compounded by the fact that risk markets (spx etc) are currently trading at all time highs, making a reversal in their direction and risk-off tone more likely. Furthermore other risk-off assets such as Gold and Bonds are trading well. All of which may combine into a strong risk off environment that fuels the JPY follow the bullish trend with its counterparts (bonds and gold) and enabling UJ to push past the 105 strong hold. - However, these issues are all displaced by a tight SL as advised at 104.9 (to benefit from the 105 key lvl supporrt potential)
Long
by QuantumLogicTrading
4