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USD/CAD Pressured but Policy Divergence Still FavorableUSD/CAD has entered its third straight losing week and faces renewed pressures today after the upside surprise in Canadian inflation. Crucially, Core CPI accelerated 1.6% y/y in May, snapping its five-months declining streak. The Bank of Canada had slashed rates earlier this month, for the first time four years and had hinted at further easing if inflation continued to decelerate. But today’s hot CPI report, casts some doubt over the disinflation process and the policy path. The pair remains is risk of bigger decline below the 38.2% Fibonacci of the December-April advance. Sustained weakness towards and beyond 1.3419 has a higher degree of difficulty though. However, today’s hot report is not the end of the disinflation process and is likely not enough to bar further rate cuts by the BoC. Its US counterpart meanwhile is reluctant to pivot due to inflation persistence and Fed officials see just one cut this year, despite more optimistic market pricing for two moves. This monetary policy divergence remains a tailwind for USD/CAD. On the technical front, the pair has already defended the critical 38.2% Fibonacci and another bounce off would reaffirm the upside bias and allow the bulls to push for new 2024 highs (1.3846). Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
Long
by FXCM
1
Nikkei Remains in Consolidation after Mixed Inflation DataJPN225 has backed off its March record peak, as the central bank made a historic exit from negative rates, shifting away from the ultra-loose stance that has devalued the Yen and has boosted equities. The BoJ is set to go further down that road and start scaling back its bond buying, while at least one more rate cut this year looks reasonable as officials expect underlying inflation to increase gradually. These prospects could weigh further on the index and sent it back towards this year’s low (36,732), but the downside appear unfriendly with the 200Days EMA following (blue line). Despite the pullback, JPN225 shows resiliency, as the Bank of Japan maintains an accommodative stance and the lack of clarity around its intentions to reduce the asset purchases cast doubts over the policy normalization process. Today’s mixed inflation data added to the uncertainty, as core CPI rose but less than expected and core-core dropped for ninth straight month. Furthermore, the stock market’s strength goes beyond easy monetary policy. Structural reforms, strong corporate earnings and market friendly government trying to direct saving into investments provide long-term tailwinds. As such, JPNN225 can resume its advance and push for new all-time highs (41,227). The recent consolidation is likely to persist though, amidst competing drivers. Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
FX:JPN225
by FXCM
NZDCAD: Policy Divergence Favoring the KiwiHello Traders, In today's trading session, we are keeping a close watch on NZDCAD for a promising buying opportunity around the 0.83900 level. After experiencing a prolonged downtrend, NZDCAD has successfully broken out and is currently in a correction phase. This correction is bringing the pair closer to a critical support and resistance zone at 0.83900, making it a prime area for potential buy entries. The ongoing policy divergence between the Reserve Bank of New Zealand (RBNZ) and the Bank of Canada (BoC) adds an extra layer of favorability for the NZD over the CAD. The RBNZ's more accommodative stance compared to the BoC's policies provides a supportive backdrop for the NZD, further bolstering the case for a buying opportunity at this level. Trade safely, Joe
Long
by JoeChampion
3
NZD/CAD: Capitalizing on RBNZ Stability and BoC DovishnessHello Traders, In the coming week, we are closely monitoring NZD/CAD for a potential buying opportunity around the 0.84090 zone. NZD/CAD is currently trading in an uptrend and is undergoing a correction phase, bringing it closer to the key support and resistance area at 0.84090. This level has historically served as a significant pivot point for price action, making it an attractive entry point for long positions. From a fundamental perspective, the Reserve Bank of New Zealand (RBNZ) is maintaining a steady stance and is not looking to cut rates anytime soon. In contrast, the Bank of Canada (BoC) seems to be on pace to cut rates, given the easing inflationary pressures in Canada. This divergence in monetary policy favors the NZD over the CAD, adding strength to our bullish outlook on NZD/CAD. Additionally, the overall bullish sentiment in the stock market could further benefit NZD/CAD due to the positive correlation between risk-on environments and NZD strength. This confluence of technical and fundamental factors makes the 0.84090 zone a strategic area to look for buying opportunities in NZD/CAD. Trade safely, Joe
Short
by JoeChampion
11
Could the USDJPY retest 160?When the BoJ increased interest rates in March, for the first time in 17 years, the Yen continued to weaken due to the perceived lack of commitment toward further rate hikes. In April the BoJ kept rates on hold at 0.10%, which saw the Yen react with further weakness. The BoJ is due to release its Policy Rate and Monetary Policy Statement tomorrow (Friday). With the USDJPY currently at the 157.25 price level, a resumption of strength on the DXY following the FOMC decision yesterday could see the USDJPY climb up to the resistance level of 158 before the BoJ decision. If the BoJ decides to keep rates on hold and not take any further action on reducing its bond purchases, the Yen could weaken further, pushing the USDJPY higher toward the all time high of 160. This is likely to make it very interesting as it would reignite the speculation of a possible currency intervention from the BoJ
Long
by JinDao_Tai
DAX Tests Critical Support after Hotter German InflationConsumer price pressures in Germany accelerated in April to 2.4% y/y, which marked the first uptick since December. Eurozone inflation meanwhile persisted at the same level (May preliminary due on Friday), while wages in the region increased in the first quarter. This has created some worries around the disinflation process and the central bank’s prospects for less restrictive stance. GER30 extends its slide from the recent all-time peak into the third week as a result and now tests a crucial support area. It breaches the EMA200 (H4) threatening the 38.2% Fibonacci of its last leg up. This would pause the bullish momentum and create risk for deeper pullback towards the daily Ichimoku Cloud, but we are cautious around sustained weakness. Recent European inflation data may have showed some persistence and European officials may have warned against back-to-back rate cuts, but the ECB is expected to become the first major central bank to pivot and slash rates next week. This shift towards looser monetary setting, along with Germany’s exit for recession, are supportive for the stock market. Furthermore, the RSI is oversold and if GER30 manages to hold the pivotal EMA200 and 38.2% Fibo, its bullish bias would be reaffirmed and could lead to new record highs. Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
FX:GER30
by FXCM
EURUSD Goes for Profitable Month but Monetary Policy UnfavorableThe pair made a strong start to the final week of May, heading towards its first profitable month of the year. This gives it the chance to push for 1.0981, but we are cautious around further gains, as the monetary policy differential is unfavorable. As such, we can see renewed pressure towards the EMA200 (black line) and daily closes would reinstate the bearish bias, but there are multiple roadblock below it. Markets now brace for Friday’s US PCE and Eurozone’s preliminary CPI inflation updates that can shape rate expectations and determine the pair's next move. The European Central Bank looks ready to become the first major institution to pivot and cut rates at next week’s meeting and Monday’s commentary from at least two officials pointed to such action. The path beyond is far from guaranteed though, as policymakers have generally warned against back-to back moves. The US Fed on the other hand has adopted a higher-for-longer narrative, since the disinflation process has slowed this year, while the labor market is robust and the economy strong. There is volatility around the rate path expectations, but markets currently see only one cut as the most likely outcome and have pushed back its timing to November. Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
Short
by FXCM
Kiwi Upside Bias Strengthened after Hawkish RBNZThe Reserve Bank of New Zealand delivered a hawkish hold on Wednesday, as it raised the OCR forecast to 5.7%, leaving room for further tightening. Policymakers believe that longer restriction may be needed to achieve the 1-3% inflation target and also upgraded their forecast, expecting CPI to fall less and slower than previously thought. The US Fed meanwhile has adopted a cautious stance towards removing monetary restraint, due to stubborn inflation this year, strong economy and robust labor market. The central bank is still widely expected to lower rates this year though. Most commentary - including from Chair Powell - has dismissed prospects of rate hikes, pointing to the need that sustained restrictive stance to control inflation. The monetary policy differential favors the Kiwi, since RBNZ has kept more tightening in play, whereas its US counterpart has hinted to cuts. NZD/USD is on the driver’s seat with the ability to tackle 0.6219, although news 2024 highs, but further gains towards 0.6412 have higher degree of difficulty. On the other hand, the Fed’s apprehension provides support to the greenback and this can create pressure back toward the EMA200 (black line). Daily closes below it would pause the upside bias, but sustained weakness below it does not look easy – fundamentally and technically as the daily Ichimoku looms. Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
Long
by FXCM
AUDUSD Exposed to Pivotal Support in the RBA AftermathThe Reserve Bank of Australia raised its 2024 inflation forecast on Tuesday and appeared more concerned around achieving its 2-3% target. Despite considering the case for a hike, policymakers decided to hold rates at 4.35% for fourth straight meeting. The Aussie reacted lower, as markets likely expected a more hawkish language from the RBA, given the upgraded CPI projections. At the same time, inflation persistence in the US has turned the Fed cautious towards lowering rates, pedaling the higher-for-longer narrative. Markets have pushed back the timing of such moves to beyond summer and price in just 25-50 bps worth of cuts this year. AUDUSD is now exposed to the critical confluence of supports, provided by the EMA200 and the 38.2% Fibonacci of the April low/May high advance. Daily closes below it would shift immediate bias to the downside and open the door to further losses towards 0.6464. However, the policy differential is unlikely to fuel sustained weakness and if anything, it could become supportive. The Fed is still projected to cut this year, whereas markets have priced out such moves by the RBA for around a year more and Governor Bullock did not rule out hikes. Above the EMA200 and the 38.2% Fibonacci, bulls are in control with the ability to set higher highs. Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
Long
by FXCM
EURUSD Struggles at Key Resistance Ahead of the FedThe pair has managed to stage a rebound from its 2024 lows and reacts positively to today’s preliminary data from Eurozone, which showed Q1 GDP expansion and persistence in headline inflation. As such, the common currency continues its effort to surpass the pivotal resistance confluence, provided by the EMA200 and the 38.2% Fibonacci of the March-April slump. Successful outcome would negate the downside bias and bring 1.0885 in the spotlight. However, we are cautious around the ascending prospects. The path of least resistance is down, technically and fundamentally. A rejection of the aforementioned critical region would reaffirm the bearish bias and open the door to lower lows (1.0600). The monetary policy differential is unfavorable and EZ core CPI continued to decelerate. The European Central Bank is looking to change tack and slash rates as early as June, dictated by weak growth and progress on inflation. Its US counterpart on the other hand, has adopted a conservative approach due to strong economy, resilient labor market and persistent price pressures that raise the bar for a pivot. The next leg of the move will likely be determined by Wednesday’s policy decision from Fed officials and since no move is projected, investors will be looking for any updates around their rate intentions. Stratos Markets Limited (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Europe Ltd (trading as “FXCM” or “FXCM EU”), previously FXCM EU Ltd (www.fxcm.com): CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Stratos Trading Pty. Limited (www.fxcm.com): Trading FX/CFDs carries significant risks. FXCM AU (AFSL 309763). Please read the Financial Services Guide, Product Disclosure Statement, Target Market Determination and Terms of Business at www.fxcm.com Stratos Global LLC (www.fxcm.com): Losses can exceed deposits. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this video are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed via FXCM`s website: Stratos Markets Limited clients please see: www.fxcm.com Stratos Europe Ltd clients please see: www.fxcm.com Stratos Trading Pty. Limited clients please see: www.fxcm.com Stratos Global LLC clients please see: www.fxcm.com Past Performance is not an indicator of future results.
Short
by FXCM
Will Yen Tank to New Lows?The Japanese Yen is one of the worst performing currencies in 2024. It has weakened 5.4% against the USD. Forces have been stacked against Yen ever since the US Federal Reserve started raising interest rates at a record pace. In sharp contrast, ultra loose monetary stance from the Bank of Japan (BoJ) resulted in wide policy rate differential of 5% between short-term interest rates in both countries, which has contributed to Yen weakness. The Yen made a recovery in December driven by a dovish Fed and hopes of BoJ exiting its ultra-loose policy in 2024. Yen rose to levels unseen since June 2023. However, thus far in 2024, the Yen has weakened as recent developments have cemented the need to maintain current loose monetary policy in Japan. An Earthquake that struck Japan at the start of the year caused infrastructure damage. Stimulus will be required to fix that. Inflation in Japan is retreating to BoJ’s target range rapidly. Consequently, the central bank may see no rush to start hiking rates given uncertain recovery in economic growth. This paper describes various forces at play and establishes a hypothetical trade setup using CME Japanese Yen futures to harness gains from weakening Yen. BOJ’s MONETARY POLICY MAY STAY LOOSER FOR LONGER 1. Aid for Earthquake Relief: On January 2nd, a severe earthquake hit near Japan's Ishikawa prefecture , causing widespread destruction, damaging over 4,000 homes. The area continues to experience aftershocks, adding to the damage. Moody’s RMS predicts insured losses from the earthquake could be between USD 3 billion and USD 6 billion. In response, Japan's Prime Minister Fumio Kushida plans to double earthquake relief funds to USD 7 billion in the next fiscal year to aid recovery efforts. Given the economic fallout, the BoJ is likely to maintain its lenient monetary policy in the near future. 2. Cooling CPI: Japan’s most recent CPI figures showed inflation cooling to 2.6% in December from 2.8% in November. That is the lowest reading since July 2022. Core CPI, which excludes fresh food, a measure referenced by the BoJ, fell to 2.3% from 2.5%. Inflation excluding fresh food and energy was 3.7% YoY, which was also lower compared to November’s 3.8%. The core CPI reading is just a hair above BoJ’s target range of 2%. Inflation was driven lower by decline (11.6% YoY) in energy costs. The large drop was due to base effects of high energy prices last year. Services inflation remained unchanged at 2.3% fuelled by higher wages. That is positive news for the BoJ which aims to establish sustainable domestic-demand & wage-growth driven inflation. With wage hikes from the Shunto negotiation in March-April still undecided, the BoJ is unlikely to pre-empt the exit from loose policy. Therefore, the next two policy meetings are unlikely to lead to a policy shift. BoJ Policy Meeting calendar ( BoJ ) FED POLICY MAY NEED TO REMAIN TIGHTER FOR LONGER Meanwhile, concerns are plenty in the US too. Inflation rebounded in December. Core inflation remains strong. Robust retail sales suggest consumers are resilient and still spending. Jobs data from December was healthy. Recent jobless claims points to further strength in the labour market. Put together, the Fed will not rush to cut rates as markets expect. This is exemplified by diverging market and Fed expectations for rate path. According to CME FedWatch tool (as of 22/Jan), markets are expecting 5 rate cuts in 2024 while Federal Reserve's dot plot suggested only 3 rate cuts would take place. Both factors, from Japan and the US together, suggest fundamental Yen weakness and these conditions are expected to persist for longer. YEN INTERVENTION WARNING Despite the fundamental weakness, there are risks from betting against further Yen weakening. As the currency weakened rapidly past 148/USD, the Japanese Finance Minister, Shunichi Suzuki, stated that the government is closely watching developments in the currency markets. He stressed the importance of stability and that market movements should reflect economic fundamentals. Likelihood of intervention remains high and its impact on the Yen has been discussed previously . MARKET METRICS Options market activity points to a contrasting trend. Recent open interest change in CME Group Japanese Yen options have been tilted towards higher calls signalling hopes of Yen strengthening. Overall positioning points to a similar contrary trend. CME Group Japanese Yen options OI change between 11/Jan and 19/Jan ( QuikStrike ) Despite the recent rally, implied volatility has not spiked significantly. They remain well below the highs seen in mid-December around BoJ’s policy meeting. Moreover, options skew remains elevated from its lows observed in late-October when the sentiment around Yen was heavily bearish. CME Japanese Yen options CVOL index and options skew ( CVOL ) HYPOTHETICAL TRADE SETUP The BoJ is unlikely to exit its loose policy stance any time soon against the backdrop of rapidly slowing inflation and uncertain economic outlook. In the US, a rebound in inflation might delay Fed’s rate cut decision. Collectively, this points to fundamental Yen weakness. To limit downside exposure in case of intervention by Japanese officials in currency markets, a tight stop can limit losses. The below hypothetical trade setup suggests a short position in CME Group Japanese Yen futures expiring in March (6JH2024) that provides a 1.55x reward to risk ratio. CME Group Japanese Yen futures have maintenance margin of USD 2,600 and provide exposure to 12,500,000 Yen. • Entry: 0.0068115 • Target: 0.0066000 • Stop Loss: 0.0069500 • Profit at Target: USD 2,643 (68115 – 66000 = 2115 pips x 1.25) • Loss at Stop: USD 1,731 (69500 – 68115 pips = 1385 pips x 1.25) • Reward-to-Risk: 1.55x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. 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CME:6J1!Short
by mintdotfinance
EURUSD Pair Projections for Q1, Q2, and Q3 2024Financial Analysis: EURUSD Pair Projections for Q1, Q2, and Q3 2024 Disclaimer : This analysis is based on the information available as of the provided date and is subject to change. It should not be considered as financial advice. Readers are encouraged to conduct their own research before making investment decisions. Ifo Report and Current Business Climate The recent Ifo report reflects a clouded sentiment in the German business landscape, with companies expressing dissatisfaction with their current business situations and heightened skepticism regarding the first half of 2024. Notably: Manufacturing The Business Climate Index in manufacturing witnessed a noticeable decline, with companies perceiving their current business situation as significantly worse. Expectations in the manufacturing sector grew more pessimistic, particularly affecting energy-intensive industries. Service Sector The service sector experienced a slight improvement in the business climate, driven by increased satisfaction with current business situations. Service providers displayed reduced skepticism about the outlook for the next six months, although expectations in restaurants and catering saw a nosedive. Trade The trade sector suffered a setback, as companies assessed their current situations as notably worse. Holiday trade for retailers, in particular, disappointed. Construction The Business Climate Index in construction hit its lowest level since September 2005, with companies reporting a worsened current situation. Approximately half of the companies anticipate further deterioration in the months ahead. Projections for EURUSD in Q1, Q2, and Q3 The Ifo report's insights into the German business sentiment set the stage for assessing the FX:EURUSD pair's projections: Q1: Sluggish Momentum The current scenario suggests a sluggish start for EURUSD in Q1. The clouded business sentiment in Germany may contribute to a sideways market, marked by cautious trading. Q2: Anticipating Improvement As Q2 unfolds, there is an expectation of an improvement in the financial situation in Europe. Despite the challenging Q1, signs of stabilization and potential positive developments could influence a more favorable outlook for the EURUSD pair. Q3: Inverse Head & Shoulders Pattern An analysis of the larger fractal, specifically the Inverse Head & Shoulders pattern forming in the EURUSD pair, points towards robust bullish momentum. This projection aligns with a potential turnaround by the end of Q2 and the beginning of Q3, indicating a shift towards a more positive market sentiment. Conclusion In conclusion, the EURUSD pair is likely to face challenges in the early part of 2024, reflecting the clouded sentiment in the German business landscape. However, signs of improvement are anticipated in Q2, with the formation of an Inverse Head & Shoulders pattern suggesting a strong bullish momentum in the currency pair by the end of Q2 and the beginning of Q3. Traders and investors should closely monitor economic indicators, global events, and the evolving business climate for timely decision-making in the dynamic forex market.
Long
by wikitrades
Gold Poised to Shine - 18% Upside Projected by Completing Wave 5Gold is currently trading around 494.92 RMB per gram in China as of July 25, 2023. Based on the technical analysis on XAUCNY showing we are currently in wave 5, subwave 4 of an upward trend, the prediction is that by January 2025, the price for 1 ounce of gold will reach 16575 RMB. Given that 1 ounce equals 28.3495 grams, a price of 16575 RMB per ounce implies that the price per gram of gold is expected to reach around 584 RMB by January 2025. This represents an increase of approximately 18% from the current price of 494.92 RMB per gram. Going from subwave 4 to subwave 5 typically signals the final leg of an advancing trend before it completes the larger degree wave 5. If the analysis is correct, we can expect the 18% price increase to occur over the next 1.5 years as gold enters the terminal subwave 5. The ongoing expansionary monetary policies by central banks globally serves as a key driver supporting higher gold prices. High inflation levels in many economies incentivizes investors to allocate more funds to gold as an inflation hedge. Geopolitical tensions, such as the Russia-Ukraine conflict also increase safe-haven demand for gold. While risks remain, such as potential interest rate hikes that strengthen the dollar, the overall backdrop still seems conducive for higher gold prices. From a technical perspective, the upside projection toward 584 RMB per gram over the next 1.5 years aligns with the view that subwave 5 will see accelerating upside momentum toward completing wave 5. In summary, based on current technical analysis, the prediction is that gold will reach 584 RMB per gram by January 2025, an 18% increase from today's levels, as it completes the final wave 5 uptrend over the coming months. The macroeconomic and geopolitical environment also seem supportive of this view.
SAXO:XAUCNHLong
by teconlab
EURAUD bullish on dovish RBA Bullish EUR/AUD on Dovish RBA Monetary Policy Reunion The Reserve Bank of Australia (RBA) held its latest monetary policy meeting on October 3, 2023, and decided to keep the official cash rate (OCR) at 4.10%. This was widely seen as a dovish move, as markets had been expecting a 25 basis point rate hike. The RBA's decision was likely influenced by a number of factors, including the recent slowdown in the Australian economy, the ongoing war in Ukraine, and the risk of a global recession. In its statement, the RBA noted that "inflation is higher than expected in Australia and globally, and is expected to remain high for some time". However, the RBA also said that "growth in the Australian economy is expected to slow in the coming months, and the unemployment rate is expected to rise". The RBA's dovish stance is likely to be positive for the EUR/AUD currency pair. A lower OCR in Australia is likely to make the Australian dollar less attractive to investors, while a higher OCR in Europe is likely to make the euro more attractive. In addition to the RBA's monetary policy decision, there are a number of other factors that are currently supporting the EUR/AUD currency pair. These include: The ongoing war in Ukraine, which is weighing on the global economy and boosting demand for safe-haven currencies such as the euro. The risk of a global recession, which is also boosting demand for safe-haven currencies. The European Central Bank (ECB) is expected to start raising interest rates in the near future, which would further support the euro. Technical Analysis From a technical perspective, the EUR/AUD currency pair is currently trading above a key trendline. This suggests that the pair is in an uptrend and is likely to continue to move higher in the near future. The next key target for the EUR/AUD currency pair is the 1.70 level. If the pair can break above this level, it could then move towards the 1.75 level. Conclusion The EUR/AUD currency pair is currently in a bullish trend and is likely to continue to move higher in the near future. This is supported by the RBA's dovish monetary policy stance, the ongoing war in Ukraine, the risk of a global recession, and the ECB's hawkish stance. From a technical perspective, the EUR/AUD currency pair is currently trading above a key trendline. The next key target for the pair is the 1.70 level. If the pair can break above this level, it could then move towards the 1.75 level. Trade Idea Buy EUR/AUD above 1.66 with a target of 1.70 and a stop loss below 1.6356. Risk Warning Trading foreign exchange (forex) is a risky activity and can result in substantial losses. Please ensure that you understand the risks involved before trading forex.
Long
by masterclass618
1
EURUSD:Did the fed win the battle against inflation?Hey Traders, In today's trading session, our focus is on monitoring EURUSD for a potential buying opportunity around the 1.1100 zone. From a technical standpoint, EURUSD has successfully breached a significant resistance level at 1.1100. As a result, we are now observing the possibility of a retracement of this breakout, which could potentially lead to further upward movement and new highs. From a fundamental perspective, the recent release of soft CPI data has important implications. The softer CPI data suggests that inflationary pressures may be easing, which, in turn, could prompt the monetary policy to become less restrictive. When monetary policy becomes less restrictive, it typically leads to a weaker USD. Therefore, based on this fundamental analysis, there is a potential for USD weakness, further supporting the case for a potential buying opportunity in EURUSD around the 1.1100 zone. Trade safe, Joe.
Long
by JoeChampion
10
DXY Potential UpsidesHey Traders, In the upcoming week, we are closely monitoring the DXY (U.S. Dollar Index) for a potential buying opportunity around the 102.600 zone. The DXY has been trading in a downtrend, but it recently broke out of this trend. However, it is currently in a correction phase, attempting to retrace for the second time before potentially continuing its upward movement. From a fundamental perspective, there are signals indicating a potential upcoming couple of rate hikes from the Federal Reserve in their next monetary policy decisions. This information can have a significant impact on the DXY and related currency pairs. I would recommend keeping a close eye on the DXY, not just prior to the new trading week, but also on a daily basis. This will help you trade USD pairs more professionally by identifying their direction. Additionally, monitoring the correlation between the DXY and the crypto market, as well as equities and indices, can provide valuable insights for trading decisions. By staying informed about the DXY's movements, you can enhance your trading strategy and make more informed decisions regarding USD pairs and related markets. Trade safe, Joe.
TVC:DXYLong
by JoeChampion
11
Gold:the monetary commodity’s fate in the hands of central banksGold is arguably the most sensitive commodity to monetary policy. The metal operates more like a pseudo-currency than a regular commodity (a regular commodity’s price is driven by the balance of supply and demand, gold is driven by many of the macro determinants of currencies). After hiking rates every meeting since February 2022, the Federal Reserve (Fed) took a pause in June 2023. The central bank has lifted the upper bound of Fed Fund target rates from 0.25% to 5.25% over that timeframe, marking one of the most rapid rate hiking cycles in history. At times, the Fed was hiking in 0.75% clips. Rising interest rates were an extreme headwind for gold for most of this period. Can gold investors breathe a sigh of relief now? Is this a temporary pause, or a halt on rate hikes? Well, if Fed Fund futures are to believed, there may be one more rate hike by September 2023. If the participants of the Federal Open Market Committee (FOMC) are to be believed, there could be several more rate hikes (with the median expectation of these participants pointing to a terminal midpoint rate of 5.625%, that is, an upper bound of 5.75%). Professional economists1 seem less sure of such decisive action, with the median looking for no change in rates this year (and cuts commencing in Q1 2024). Senior Economist to WisdomTree, Jeremy Siegel, believes the Fed is done hiking and that alternative inflation metrics, which incorporate real time housing inputs, show inflation running at 1.4% instead of the official 4.1% in May 20232. Market inflation expectations are not falling away as fast as we would expect. Judging by the 5yr5yr swaps, longer-term market inflation expectations are actually rising modestly. Higher inflation tends to be gold-price supportive (other things being equal). After hitting an all-time high in 2022, central bank demand for gold has maintained strong momentum. Official sector gold buying in Q1 2023 was the largest on record for the first quarter (albeit lower than Q3 2022 and Q4 2022). A YouGov poll, sponsored by the World Gold Council3 , showed that developing market central banks are expecting to increase their gold reserve holdings and decrease their US dollar reserve holdings. With a lack of forceful stimulus from the Chinese government, and still elevated gold prices in Renminbi terms, we expect a slowing of retail demand in China. In fact, Shanghai premiums over the London Bullion Market Association (LBMA) price slowed in May and remain low in June. Looking to WisdomTree’s gold price model, we can see that bond headwinds have clearly fallen away and US dollar depreciation (relative to a year ago) is offering gold some support rather than dragging prices lower. However, investor sentiment towards the metal has moderated since March 2023, when the collapse of Silicon Valley Bank (SVB) and the shotgun marriage between UBS and Credit Suisse Banks was announced. With the passing of the US debt ceiling debacle, there aren’t any specific risks driving gold demand higher. However, general recession fears and the potential for unspecified financial sector hiccups are likely to keep gold demand moderately high as the metal serves well as a strategic asset in times of uncertainty. Source: 1 Bloomberg Survey of Professional Economists, June 2023. 2 The alternative measure calculates shelter inflation using Case Shiller Housing and Zillow rent which annualise at 0.5% instead of the 8% that is biasing the Bureau of Labor Statistics CPI higher. 3 2023 Central Bank Gold Reserves Survey, May 2023.
COMEX:GC1!
by aneekaguptaWTE
1
AUDNZD Potential UpsidesHey Traders, In today's trading session, we are paying close attention to the AUDNZD currency pair, as we believe there might be an opportunity to buy around the 1.09600 zone. From a technical standpoint, AUDNZD is currently in an uptrend but experiencing a corrective phase. It is approaching a significant support zone around 1.09600, which adds to its appeal as a potential buying opportunity. From a fundamental perspective, it's worth noting that the Reserve Bank of Australia (RBA) is still in the process of gradually raising interest rates. This indicates their intention to tighten monetary policy in order to manage the economy. On the other hand, the Reserve Bank of New Zealand (RBNZ) has officially halted any further rate hikes, suggesting a more stable or potentially looser monetary policy approach. Considering both the technical and fundamental factors, the current market conditions suggest that the AUDNZD pair could present an attractive buying opportunity near the 1.09600 support zone. Trade safe, Joe.
Long
by JoeChampion
8
GBPUSD Approaching the weekly trend ahead of CPI data.Dear Traders, I'd like to bring your attention to the current market conditions of GBPUSD. It is currently experiencing a downtrend but is undergoing a correction phase. The price is approaching a significant resistance zone at 1.26100, which coincides with the major trend. This area is worth monitoring closely. In addition, it's crucial to take into account the upcoming Consumer Price Index (CPI) release this week. This economic indicator is expected to have a substantial impact on the strength of the US dollar and may provide insights into the future actions of Fed Chair Powell. If the CPI figures are higher than anticipated, it suggests that the Fed may need to continue raising interest rates, which could strengthen the dollar further. On the other hand, if the CPI falls below expectations, it is more likely that the Fed will postpone any rate hikes in their next monetary policy decision. Remember to prioritize risk management and trade with caution. Best regards, Joe
Short
by JoeChampion
43
Yen Step Back, Two Steps ForwardDespite sharp inflation, the Bank of Japan (BOJ) left YCC unchanged on March 10th. This was Haruhiko Kuroda’s last meeting as BOJ Governor. Japan is still struggling to stoke growth at risk of sustained stagflation. Hence, his decision to leave rates intact was no surprise. Kuroda left the YCC unchanged. Analysts expected him to scrap the YCC so that the new incoming governor, Kazuo Ueda could start afresh. Hopes of change are now expected at the next BOJ policy meeting on April 27th. Kuroda leaves behind a mixed legacy. His strong monetary stimulus lifted the Japanese economy out of deflation at the cost of hurting bank profits with ultra-low rates. Growth has remained tepid. Kuroda has been a source of stability. More than what was needed in the staid land of the rising sun. Now, the monetary policy landscape is expected to shift as Ueda takes charge. New BOJ leadership and an aggressive US Fed will create near term weakness in JPY followed by medium term strength. This case study analyses a two staged positioning in CME Japanese Yen Futures to harness yield from anticipated currency moves. Change of Guard at the BOJ Under the new governor, definitive shifts are afoot. Inflation in Japan is non-negative. Really? Yes. Not only non-negative but also at levels unseen in 43 years. Kuroda may not have radically transformed Japanese economy, but he managed to revive its equity market. The risk of uncertainty and volatility exists once he leaves the office. Markets are used to perennial Japanese low inflation, and to a consistent central bank leadership. Both are now going or gone. Another big shift is BOJ's more definitive independence. While separate from Government of Japan, BOJ was seen as being an integral part of Abenomics to snap out of deflation. The Kishida-Ueda relationship is different. Prime Minister Kishida has not outlined a particular direction on macroeconomic policy. Politically, the LDP is far from united, not least on fiscal and monetary policies. Kishida’s base of support within the party is fragile, and his approval ratings have been in a prolonged slump. As a BOJ governor, Ueda comes from an unconventional background. He is the first academic to assume leadership of BOJ. He has not managed a large organization. He is knowledgeable about monetary policy and is a protege of Stanley Fisher. What, then, can we expect from Ueda? He is not convinced that inflation is sticky. Ueda maintains that “…inflation is led by cost-push factors” and “it will still take time to achieve sustainable inflation.” It does hint that he isn't someone who will make any sudden major moves. That said, in a parliamentary hearing earlier this month, Ueda hinted that the current YCC was unlikely to survive. Engaging the market is essential he said before adding that “in some cases, adding a surprise factor is unavoidable.” There is growing evidence emerging from the annual “shunto” (a big wage negotiation between unions and employers) that workers are asking for the largest raise in base pay in 25 years. Some Japanese employers have already raised wages sharply higher with case in point being Fast Retailing (a Japanese listed firm and parent company of Uniqlo) which raised pay by 40% earlier this year. Until now, it has been possible to attribute Japan’s inflation to the rise in the cost of imports driven by weak yen. Big wage increases would change that. However, the latest data, published Tuesday, shows that wage growth is not rising as fast as expected. In cash terms, it reached the highest level in decades last year, but the January figure was far lower. Real wages adjusted for inflation have been falling the most since 2009. Balancing growth while keeping inflation under control is not a small feat. Next BOJ policy meeting is more than a month away. Meanwhile, the US Fed is becoming more hawkish in its fight against domestic inflation. Another rate hike by the US Fed will further weaken the fragile Yen. The US macro environment is making an already complicated situation even more difficult. The failure of Silicon Valley Bank along with closure of Signature Bank and Silvergate Bank is testing the Fed’s wit. US Inflation continues to remain hot and three times the Fed’s target. With the liquidity backstop in place, the Fed is likely to jack up its rate by another 25 basis points when it meets on March 22nd. CME’s FedWatch tool pegs the likelihood of that happening at 82% as of March 14th. Against that backdrop, Ueda could do one of the three once in office – (1) further widen the 10-year JGB interest rate band, (2) target shorter term yields & thereby reduce JGB holdings, and (3) abandon yield targeting altogether. Options Markets are Bullish JPY/USD Options on CME’s Japanese Yen futures have an overall Put/Call ratio of 0.56 across all expiries, indicating that investors are expecting the Yen to weaken. In sharp contrast though, options for the July contract show a deviation from the trend with a Put/Call ratio of 2.6x. This coincides with the release of the 2nd Outlook Report by the BOJ after Ueda takes over, indicating the market expectation on Yen’s reversal versus USD starting July. How much more JGB can BOJ keep buying to sustain YCC? Can this last? Last December, the BOJ tweaked its YCC policy, to allow the 10-year Japanese Government Bonds (JGB) yield to move 50 basis points (bps) on either side of its 0% target, wider than the previous 25 bps band. The move stunned markets as BOJ hinted at monetary tightening after having stuck to its ultra-loose policy stance for a long time. YCC tweak spilled over into January as BOJ was forced to purchase a record $182B of JGB to defend its higher yield cap from breaching the ceiling of 0.50%. The BOJ now holds more than 50% of JGB, making the situation ever more unsustainable. Adding to the JGB burden, BOJ also owns the majority of domestically listed exchange traded funds (ETFs). Besides massive JGB purchases, the BOJ remodeled in January a funds-supply operation into a tool to prevent yields from rising rapidly. Beyond the current short-term loans, the BOJ amended the rules to offer funds extending up to 10 years with variable rates. In January, BOJ provided loans of 3T Yen in the January offer before extending the terms of the loan to 10-year for subsequent loans. In February, BOJ tweaked the fund-supply policy terms, including the quadrupling of minimum lending fee from 0.25%-1%, to limit the short-selling of JGB’s, this indicates that the BOJ is having to use all tools at their disposal in order to defend JGB yields from rising above their defined cap. The BOJ defended yet another attack on the YCC again in February prompting a further $2.2B of JGB purchases to keep yields from breaching the ceiling. Economists anticipate that Ueda will fundamentally revisit YCC before BOJ lands in crisis. Ueda starts on April 9th. It is unlikely that he will make any radical moves instantly. Meanwhile, Fed Chair Powell is going all guns blazing to tame inflation down. Jobs data released last Friday showed the creation of 311,000 jobs smashing expectations of 225,000 jobs indicating a tight labor market. A strong labor market risks fueling a wage-inflation spiral, leaving the Fed with no choice but to jack up rates further. Two Stage Trade Setup to Gain from Near Term Weakness & Medium-Term Strength CME’s Japanese Yen Futures provides investors an exposure of 12.5 million Japanese Yen for every lot with the price quoted in USD per JPY increment. Every 0.0000005 change in JPY provides an increment of $6.25 in contract value. With the USD expected to strengthen in the near-term, JPY will weaken until the next policy meeting on April 27th. As such a short position using CME Japanese Yen futures expiring in June (6JM2023) would provide a reward-to-risk ratio of 0.6x. Stage 1 Entry: 0.0075390 Target Level: 0.0074550 Stop Level: 0.0076670 Profit at Target: $1,050 Loss at Stop: $1,725 Reward-to-Risk: 0.6x Stage 2 Thereafter, if Ueda starts to steer Japan’s monetary policy stance differently, JPY will start to strengthen in the medium term. Following from a short position in the near term, a subsequent long position in CME’s Japanese Yen futures will allow the investor to gain from the strengthening JPY. Entry: 0.0074550 Target Level: 0.0081445 Stop Level: 0.0072775 Profit at Target: $8,620 Loss at Stop: $2,220 Reward-to-Risk: 3.88x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or needs of any person. Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance. All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience. Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk. These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
CME:6JM2023Long
by mintdotfinance
2
Traders are waiting for the BoJ Monetary Policy on Friday!USD/JPY experienced a rally up to 135.13 last week but then retreated during the dollar softening. At the start of this week, the initial bias is neutral in the 4-hour chart since the market is waiting for the BoJ interest rate decision that will be released on Friday. Therefore, technically, a further rise is expected if the support level of 132.01 can be held. On the upside, if 135.13 is broken, the rebound will continue from 129.62 to the next resistance level of 135.73. Conversely, the support of 132.01 was broken; it may go further down to 131.61.
by ATFX_Global
How to Build Wealth (Even During Monetary Tightening)One question that many investors are asking right now is: How can I build wealth during monetary tightening? To answer this question, one must understand how the money supply works. The Money Supply The money supply refers to the total amount of currency held by the public at a particular point in time. M2 is one of the most common measures of the U.S. money supply. It reflects the amount of money that is available to be invested. M2 includes currency held by the non-bank public, checkable deposits, travelers’ checks, savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds. The chart above is a time-compressed view of the money supply. The time scale has been compressed such that the money supply appears as a vertical line with clusters of dots. Each dot represents a quarter (or 3-month period). During periods of monetary easing, when the central bank accelerates increases in the money supply, the dots stretch wider apart, as shown below. During periods of monetary tightening, when the central bank decelerates increases in the money supply, the dots tighten together. In rare cases, the central bank can reduce the money supply to fight inflation, in which case the dots can retrograde. The central bank rarely reduces the money supply because it usually results in economic decline. The Money Supply and The Stock Market Since the money supply reflects the amount of money that can be invested in the stock market, the stock market tends to track the money supply. As the money supply (M2SL) grows so too does the stock market (SPX). The chart above shows that despite the stock market’s oscillations, over the long term, the growth rate of the stock market tends to track the growth rate of the money supply. The stock market goes up, in large part, because the money supply goes up. The chart below is from the book Stocks for the Long Run by Jeremy Siegel, Professor of Finance at the Wharton School. The chart shows that compared to other asset classes, stocks generally perform the best over time. Stocks generally perform the best over time because the growth rate of the stock market generally tracks the growth rate of the money supply fairly well. Investing in the stock market is therefore an efficient means of preserving wealth over the long term. One will always be better off investing in assets that grow in price at a faster rate than the rate at which the money supply grows than investing in assets that do not. When the money supply decreases during periods of monetary tightening, as is happening right now, only assets that outperform the money supply can produce positive returns. Knowing these facts, we can reach the following conclusion: Generally, investing in the stock market does not intrinsically build wealth, it merely efficiently preserves wealth over time against the perpetual erosion of an ever-increasing money supply. To build wealth one must invest in assets that grow in price faster than the rate at which the money supply grows . Preserving Wealth vs. Building Wealth As noted, to build wealth one must invest in assets that move up in price faster than the rate at which the money supply moves up. Investing in assets that move up in price over time, but at a rate less than that which the money supply moves up over time may seem like a good investment to an investor if the investor is making money, but such investments are not typically wealth-building. These investments are merely some degree of wealth-preserving. When the price of an investment increases over time at a rate less than the money supply, that investment causes a loss of wealth, despite giving the investor the perception of increased wealth. A loss of wealth occurs because the investor’s purchasing power is decreasing over the period of time which the investment is held. Purchasing power is the value of a currency expressed in terms of the number of goods or services that one unit of money can buy. It can weaken over time due to inflation. To keep things simple, let’s assume that other elements of inflation, such as money velocity, remain fairly constant and that an increasing money supply is the main cause of inflation. Let’s consider some case studies. Case Study #1: REITs Suppose an investor, John, invests his money in real estate investment trusts (REITs), specifically BRT Apartments Corp. John is a smart investor and does research before investing. In his research, he sees that BRT has decent profitability and a fair valuation. He also sees that BRT has decent growth potential. After analyzing fundamentals, John does technical analysis. He sees the below chart which shows a decades-long bull run. (Chart has been adjusted to include dividends) He thinks to himself: This asset is a money maker. Despite periods of corrections, price generally goes up over time. John then buys shares of BRT as part of a long-term investment strategy. John has done his due diligence and indeed he is right that, over the long term, his investment is likely to make quite a bit of money. However, if John invests in this asset, although he will make money, he will lose wealth or purchasing power. That’s because the Federal Reserve is increasing the money supply at a rate that is faster than John’s investment grows. Here’s a chart of BRT adjusted for the money supply (and adjusted to include dividends). Adjusting the price of BRT by the money supply shows a clear downtrend over time. This means that while BRT is growing in price and its investors are making money, BRT’s investors are generally losing purchasing power over time by investing in this asset because the central bank is increasing the money supply at a faster rate than the rate at which BRT's price grows. By increasing the money supply exponentially over time, central banks trick people into believing that they are building wealth by investing when in fact most investments are, at best, some degree of wealth preserving. Only a minority of assets outperform the money supply, and usually, that outperformance is temporary. In the era of monetary easing, during which central banks drastically increased the money supply using various monetary tools, perceived wealth skyrocketed. However, actual gains in purchasing power or improvement in living standards, as measured by increased productivity, largely did not occur. You may be thinking that I simply chose a bad investment to demonstrate my point. While BRT is actually a great investment relative to most other assets, let's move on to the second case study: an asset that has skyrocketed in price in recent years. You will find that even for assets that have outperformed the growth in the money supply, the period of outperformance is usually temporary. Case Study #2: Microsoft (MSFT) Microsoft is an example of a stock that has outperformed the growth rate of the money supply in recent years. Below is a chart of MSFT adjusted for the money supply. The chart shows that although the growth in MSFT's price generally outperforms the growth rate of the money supply, it undergoes prolonged periods of underperformance when investors can lose wealth. This wealth loss effect cannot be fully ascertained by looking only at a chart of just MSFT's price. It only becomes fully apparent when one compares the stock's price to the money supply. Tech stocks have generally outperformed the money supply since the Great Recession. They were excellent wealth-building investments. However, now that the central bank has begun monetary tightening, interest-rate-sensitive tech stocks are especially likely to decline. Investing in these assets while the money supply is decreasing, and while interest rates are surging, may result in loss of wealth. Case Study #3: Utilities (XLU) The chart below shows how well the utilities sector performed over the past two decades. Let’s adjust the chart to the money supply. (See chart below) You can see that XLU moved horizontally relative to the money supply, meaning that it merely preserves wealth to varying degrees but does not generally build wealth over the long term. By including the money supply in our charts, we remove the confoundment of monetary policy and elucidate the true intrinsic growth potential of assets. Case study #4: ARK Innovation ETF (ARKK) Look at the chart below which shows ARK Innovation ETF (ARKK), managed by Cathie Wood, relative to the money supply. Cathie Wood’s investment choices have actually caused a loss of wealth since the fund’s inception in 2014. You can see in the above chart that price is slightly below the center zero line, which means that wealth has been lost by those who invested in ARKK in 2014 and held continuously to the current time. Finally, check out the below chart of SPY relative to the money supply. The entire post-Great Recession bull run in SPY was merely a recovery of the wealth lost since the Dotcom Bust, over 2 decades ago. The stock market is ominously again being resisted at this peak level. The below chart shows that the stock market has given back much of the wealth built since the pre-Great Recession peak. In summary, wealth-building requires investing in assets with a growth rate that is greater than the growth rate of the money supply. To accomplish this, an investor should compare an asset against the money supply before choosing to invest. Assets that continuously outperform the money supply over the long term are better investments than those that do not. One can use standard technical analysis on the ratio chart to determine candidates that are most likely to outperform the money supply. In the face of high inflation, central banks must reduce the money supply. A decreasing money supply pulls the rug out from under the stock market. When the money supply is falling, corporate earnings and the stock market typically fall as well. Inflation When the COVID-19 pandemic hit, the Federal Reserve and central banks around the world increased the money supply by an unprecedented amount. Throughout the course of its entire history up until the pandemic, the U.S. money supply moved up predictably within a log-linear regression channel, as shown in the chart below. Before the pandemic, the log-linear regression channel had an exceptionally high Pearson correlation coefficient (over 0.99), which suggests that the regression channel was reliably containing the money supply’s oscillations over time. When the pandemic hit the global economy came to a halt. The Federal Reserve increased the money supply by a magnitude that was so astronomical that it went up vertically even when logarithmically adjusted. (See the chart below) As a thought experiment, let’s assume that the log-linear regression channel above is valid and that data are normally distributed (typically they are not in financial markets). If it were the case that such a sudden, astronomical increase in the money supply occurred totally randomly, the event would be a 10-sigma event (meaning 10 standard deviations away from the mean). The chance of such a rare event happening totally randomly is so small that it would occur about once every 500,000 quadrillion years. Since this is much longer than the age of the known universe, a 10-sigma event is essentially equivalent to an event that will statistically never happen. Thus, no one was prepared for the action that the Federal Reserve took. By exploding the money supply by this extreme amount and flooding the market with so much newly created money, central banks instantly made everyone feel wealthier by giving them more money, but this action would eventually make everyone less wealthy by destroying their purchasing power as inflation ensued. Once high inflation begins, it can be hard to stop. When inflation stays high for too long the public begins to expect more of it. The public then alters its spending and saving habits. The public also begins to demand higher wages to keep up with high inflation. This creates a negative feedback loop: When workers receive higher wages to keep up with inflation, workers can afford to pay inflated prices which keeps inflation higher for longer. As workers get paid more, keeping demand high, companies also charge more for their goods and services. Eventually, workers again demand higher wages to keep up with yet even higher prices. At every stage of inflation, the best strategy for central banks is to downplay its true severity. This is because the easiest way to control inflation is by managing the public’s perception of it. The hard way to control inflation is to raise the cost of money – interest rates – which in turn induces economic decline, and which can cause financial crises as highly indebted consumers, companies and governments cannot afford higher interest payments. Bonds Government bond yields reached a record low during the COVID-19 pandemic. The chart below shows that interest rates – or the price of money – reached their lowest level in the nearly 5,000 years for which records exist. Since the start of 2022, interest rates have surged higher, breaking a multi-decade downtrend, and ushering the market into a new super cycle where interest rates will likely remain higher for the long term. Interest rates and the money supply are inextricably linked. Few people know why an inverted yield curve predicts a recession. An inverted yield curve reflects the destruction of money. When the yield curve is inverted, banks can no longer profitably borrow at short term rates and lend at long term rates. Bank lending creates the most amount of money. An inverted yield curve is a market perversion that does not occur naturally but occurs only through central bank action. Inverting the yield curve is a highly obfuscated tool that central banks use to decrease the money supply. Furthermore, as we discussed before, since the stock market generally tracks the money supply, an inverted yield curve is a warning that the stock market will fall in the future. Recently, the yield curve (as measured by the 10-year minus the 2-year U.S. treasury bonds) inverted by the most on record. Below is the chart of iShares 20+ Year Treasury Bond ETF (TLT). TLT tracks an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years. As you can see from the chart above, which excludes the past two years, it looks like TLT has been a great investment over the past two decades. (For this chart, I included dividends. TLT pays out dividends that derive from interest payments on its bond holdings.) Look at the chart below to see what happens when we adjust the chart for the money supply. In the chart above we see that since its inception TLT moved horizontally relative to the money supply. What this means is that holding TLT over this period was not wealth-building, but it was good at preserving wealth. Its price moved up in perfect lockstep with the money supply. Now, let’s see how TLT performed in the past two years. As we see in the chart above, until 2021, an investor who held long-term U.S. government bonds would have been preserving their wealth and shielding it from the erosion of perpetual increases in money supply. However, as interest rates on government debt surged higher as central banks fight high inflation, bond investors are now seeing major wealth destruction. In a stable monetary system, investing in government bonds should preserve wealth, since if it fails to do so, no one will buy bonds to finance the government. The situation is also concerning when we examine investment-grade corporate bonds (LQD) relative to the money supply. This chart of investment-grade corporate bonds adjusted for the money supply shows that we should be concerned about the current state of even the most high-grade corporate bonds. We see that the value of investment-grade corporate bonds over time, inclusive of their interest payments, has fallen off a cliff relative to the rate at which the money supply is increasing. This chart suggests that those who invested in corporate bonds have recently lost a lot of wealth. Until the current trend reverses, who would want to invest in corporate bonds? This is a problem for corporate finance. Below is a chart of high-yield corporate bonds (HYG), (which are riskier than investment-grade corporate bonds), as compared to the money supply. You can see from the chart above that all the wealth built by investing in high-yield corporate bonds since the Great Recession has been completely wiped out. What I am about to explain next will be somewhat dense. Look again at the two charts below which show investment-grade corporate bonds relative to the money supply and high-yield corporate bonds relative to the money supply. Recall that bond prices move inversely to bond yields. Thus, if we flip these charts of corporate bond prices, we will get corporate bond yields relative to the money supply. Now let’s think. These charts show that the yields on corporate bonds are moving up faster than the supply of money. Corporate bond yields reflect the amount of money that corporations must pay on their debt. In other words, the amount of money that corporations will have to pay to service their debt is moving up faster than the money supply. As noted previously, the money supply speaks to corporate earnings since corporations can only ever earn some subset of the total supply of money in the economy. Thus, if the money supply decreases, as it is now, corporate earnings will likely decrease as well. If the interest on corporate debt is moving up much faster than the money supply, and the money supply which reflects corporate earning capacity is decreasing, what might this say about the future? Mortgages In the chart below, I analyzed the current median single-family home price in the United States adjusted by the current average 30-year fixed-rate mortgage (as a percentage). I then compared this number to the money supply. This chart gives us a sense of whether or not the Federal Reserve is supplying enough money to the economy to support the current expense of home ownership. As you can see, price is rapidly approaching the upper channel line (2 standard deviations above the mean), which signals that home ownership is the least affordable it has been since the early 1980s – the last time the upper channel line was reached. If one believes that the 2 standard deviation level is restrictive, then one may conclude that there is not enough money being supplied by the Federal Reserve to sustain such high home prices as coupled with such high mortgage rates. If the Federal Reserve does not pivot back to a less tight monetary policy soon, then there is a high probability that a housing recession will occur in the coming years. Perhaps what is more alarming is the below chart, which shows the EMA ribbon. The EMA ribbon is a collection of exponential moving averages that tend to act as support or resistance over time. When the ribbon is decisively pierced it reflects a trend change. We can see in the above chart, that for the first time since the mid-1980s, we have pierced through the EMA ribbon. This could be a signal that a new super cycle has begun, whereby a higher interest rate environment will persist alongside high inflation for the long term, potentially making homes less affordable for the long term. This is one of many charts that seem to validate the conclusion that inflation will remain persistently high for the long term. Commodities In the below chart, the price of commodities is measured as a ratio to the money supply. This chart informs us that commodity prices have broken their long-term downward trend relative to the money supply. The chart above shows commodities as a ratio to the money supply side-by-side an inverted chart of the S&P 500 as a ratio to the money supply. It appears that the ratio of commodities to the money supply reflects an inverse relationship to the S&P 500 and the money supply. Think about what these charts may be indicating. Could they suggest that in the face of a shrinking money supply, more money will flow out of the stock market into increasingly scarce commodities? In a deglobalizing world facing conflict, climate change, and declining growth in productivity, it’s unlikely that commodity prices will return to the extremely undervalued levels seen in 2020. One commodity, in particular, deserves its own discussion: Gold. Gold During a monetary crisis, the usual winner is physical gold. Since the dawn of human civilization, gold has played an important role in the monetary system. As a scarce commodity gold is often perceived as inherently valuable. In his 1912 book, The Theory of Money and Credit, Ludwig von Mises theorized that the value of money can be traced back ("regressed") to its value as a commodity. This has come to be known as the Regression Theorem. Once paper money was introduced, currencies still maintained an explicit link to gold (the paper being exchangeable for gold on demand). However, the U.S. abandoned the gold standard in 1971 to curb inflation and prevent foreign nations from overburdening the system by redeeming their dollars for gold. Currently, gold is extremely undervalued when priced in U.S. dollars. The current fair dollar-to-gold ratio is currently about $7,200 per ounce of gold. This number is produced by dividing the year-to-year increases in the money supply by the yearly production of gold in ounces. Eventually, a monetary crisis will occur, and according to Exter’s Pyramid, investors will scramble for gold, which may force fiat currency to regress back to a gold standard to stabilize markets. Bitcoin In this final part, I will give a few thoughts on Bitcoin, as it relates to the money supply. Below, you will see that when charted as a ratio to the money supply, Bitcoin formed a nearly perfect double top in 2021. This chart could have warned traders that Bitcoin had topped in November 2021 given Bitcoin's inability to achieve a new high relative to the money supply. This shows that one can use the money supply in their charting as an additional layer of technical analysis. In the below chart, we see how Bitcoin's market cap is moving relative to the U.S. money supply. Bitcoin’s yearly chart is a bull flag relative to the money supply. There are very few assets outside of the cryptocurrency class that present as a bull flag relative to the money supply on their yearly chart. What might this chart reveal about Bitcoin's tendency to disrupt central banks' ability to conduct monetary policy? The Federal Reserve’s inability to stop people from converting dollars into Bitcoin to store wealth is a problem that will likely result in Bitcoin and other forms of decentralized finance coming under the greater scrutiny of the U.S. federal government. In the future, I plan to write a post on investing in cryptocurrency. In that post, I will explore Bitcoin and blockchain technology in much greater depth. Final thoughts To build wealth one must invest in assets that grow in price faster than the money supply erodes purchasing power. To become a successful investor, one must revolutionize one’s perception of money and understand that cash – or central bank notes – are worth nothing more than the belief that the government will persist and remain solvent. To build wealth an investor’s goal should not be to make as much cash as possible, rather an investor’s goal should be to convert cash into assets that grow faster than the money supply and to accumulate as much of such assets as possible.
FRED:M2SLEducation
by SpyMasterTrades
48
Rethinking Fed Intervention: Wages, Inflation, and AIIn light of the precarious global economy and numerous contributing factors, such as deglobalization, the inflationary impact of the war in Ukraine, an aging population, and an overwhelming amount of debt, the Federal Reserve's role and efficacy in the current economic climate have come into question. Drawing on Jeff Snider's work, it is increasingly evident that the Federal Reserve has not completely controlled the financial system. Despite their efforts to manipulate interest rates, external factors and market forces continuously challenge the Fed's authority. The market's current outlook suggests that the Fed may be forced to cut rates soon, indicating that its strategy of hiking rates may not have been the best approach. The central premise that the Fed should intervene to suppress inflation by keeping wages low is fundamentally flawed. Higher wages can lead to increased productivity investments, reducing the need for labor and raising living standards over time. However, hiking interest rates can stifle investment, hindering economic growth and exacerbating inequality. In recent months, inflation has decreased independently, without the direct influence of the Fed's actions, suggesting that the economy may be self-correcting. However, this natural deflationary pressure could be disrupted by external factors, such as the tightening of lending standards brought on by the mini-banking crisis. The ongoing threat of AI-driven job losses and an impending recession further complicates the situation for American workers. Jeff Snider's research at Eurodollar University offers valuable insights into the complex relationship between the Fed and inflation. Snider argues that the Fed's actions may not be the primary cause of inflation, as it has limited control over the money supply. Instead, he posits that the global financial system, specifically the eurodollar market, plays a more significant role in influencing inflation rates. As we progress into the exponential age, the rapid advancement of technology and artificial intelligence (AI) will lead to significant disruptions. However, there are potentially positive aspects to these developments. AI could revolutionize industries, streamline processes, and create new opportunities. The widespread adoption of AI can lead to increased efficiency, improved decision-making, and the automation of repetitive tasks, ultimately driving economic growth. The productivity gains associated with AI could offset some of the negative impacts of the current economic climate, such as job losses and wage stagnation. In summary, the belief that the Fed should intervene to suppress wages to tackle inflation is fundamentally misguided. Such intervention can have numerous negative consequences, including hindering investment and stifling economic growth. In contrast, allowing wages to rise can lead to increased productivity investments and improved living standards. To effectively address inflation, it is essential to consider a more comprehensive range of factors beyond the Fed's actions and recognize the importance of encouraging sustainable economic growth through policies promoting higher wages and productivity investments. Policymakers and financial analysts must carefully consider the consequences of their actions and their impact on the broader economy and society. Thanks to Michael Green, aka @profplum99, for inspiring me to write this analysis :) twitter.com
TVC:US10Y
by BitcoinMacro