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Bojmiss

GBPJPY: BOJ MISS; BOE HIT? MORE SELLING ON THE HORIZONBOJ Miss: 1. BOJ deliver one of the biggest misses in history (vs expectations/ pressure) - only increasing ETF purchases and dollar funding by apprx $60bn annual in total vs 10-20bps of Depo and LSP cuts + 5-20trn in QE increase + ETF increase. *See attached post for in-depth detail on the BOJ situation and price action history/ Yen strength/ Safe havens* BOJ Miss Compounded with a BOE Hit: 1. BOE are expected to ease by 25bps and possibly add 50bn to their QE programme on Thursday - a BOJ miss combined with a BOJ hit should cause compounded losses for GBPJPY as there are two drivers - Yen should continue this week to get stronger (as BOJ easing expectations surpass and Yen strength increases) whilst GBP gets weaker as the BOE on Thursday likely takes action, reducing the value of Sterling - with both providing the optimal environment for downside. - Historically, when BOJ has delivered new policy/ missed GBPJPY has sold off aggressively between 2-8days and 700-1200pips. Now whilst I dont expect the same level of aggression in the near-term as the relative value is much lower now (135 vs 175) so moves lower should be smaller - I do expect that 400pips lower on the day is not the end of the selling rally for GBPJPY. - Initially at the start of the week i expect GBPJPY to move lower at least another day (satisfying historical moves), perhaps into the 133.5 level which would be 550pips, lower than the smallest sell-off but fair given the relative value changes - not that i would be surprised to see more. - Later into the week is when I expect the bulk of GBPJPY losses to come (e.g. Thurs/ Fri) - the reason for this is as 1) any Yen downside risk from the MOF releasing upside in the details of their stimulus package would have surpassed e.g. increased stimulus from 28trn-40trn (unlikely) or increased govt spending section - both of which devaluing yen moving gbpjpy potentially higher. Though I think the risks are more skewed to MOF delivering a package that strengthens JPY as it undershoots expectations as several MOF members have mentioned the package being over several years - the more years the less punch the package has (given some expected it (5% of gdp) to be spent in 1yr), equally the less direct govt spending portion of the package will also lessen the depreciative impact on yen (rumoured to be 13trn, if less then Yen could get considerably stronger). As mentioned I see the MOF release to be asymmetrically skewed to expectation downside for these reasons. 2) BOE GBP selling pressure would happen when they cut the rate and adjust their QE programme - this is a highly likely scenario as BOE MPC Minutes in July said "Most members expect to loosen policy in August" and recently the BOE's biggest hawk M. Weale switched stance in light of UK Business PMI/ Optimism prints at 10yr lows saying the BOE needs to act fast/ delaying policy further doesn't make sense. Trading strategy: Sell GBPJPY @mrkt 133.5TP1 130.5TP2 128.5TP3 - risk averse traders could wait for the 50-60% MOF/ general Vol bounce into 136-38 level before shorting - I would reshort here anyway.
Short
by QuantumLogicTrading
11
USDJPY - BOJ MISS; FISCAL STIM PACKAGE & TRADING YEN FROM HEREBOJ - 3trn increase in annual ETF Purchases + $24bn increase in USD funding for banks 1. The BOJ on Friday delivered a shockingly poor package, imo they changed the snallest part of their current QQE programme. 2. What was interesting though was the markets reaction - immediately after the decision $Yen spiked higher then lower to 103 level but from then and into and through the London Open $Yen was being brought/ held up around the 103 level - it wasnt until NY came in at 1430GMT that $Yen broke lower. - But even then it was surprisingly a laboured move lower, taking almost the full NY session to find its lowes. - Some of the UJ weakness was down to a big GDP miss of 1.2% vs 2.6%exp, which sold the rates market off now implying only a 12% chance of a hike in September vs 18% the previous day and 25% earlier in the week, so i t would have been interesting to see what would of happened with out this dollar downside impetus. USDJPY from here: 1. Personally from 102.00 i see $Yen lower in the near term e.g. we could easily open 50pips lower on sunday into the key level at 101.5 as the asia session adds to shorts that they missed during their own session post-BOJ. - There is the possibility that we see some upside in $Yen as the MOF releases their fiscal package - the more actual govt spending the package includes and the shorter the timeframe, the greater the impact of the fiscal package on giving UJ some relief - but still i advise shorting rallies as i beliveve we move into the 100s from here. - That said in reality the impact of the fiscal package is likely to be limited if not completely muted as 1) the market already knows the extent and some of the details of the package and has done for the past week+ e.g. 28trn of which the market baring piece, the govt spending, is rumoured to be around 13trn - so this information is likely already baked into the price and imo was the driver of the support we saw on friday at the 103 level (asia/ ldn sellers wary of shorting in anticipation of the fiscal package). Thus any topside is only likely to come if MOF changes this dramatically to say 20trn govt spending (anything less is already pre-priced imo) OR even increases the package (but this is also unlikely as Japan has the highest govt debt:gdp ratio as it is) - but imo it is unlikely they would do either anyway. - In-fact, i actually believe the MOF stimulus package has asymmetrical risks to the downside/ disappointing markets - as several MOF officials have commented that the 28trn package is such a large package that it is likely to be over several years - thus the longer the MOF stretch the package over more disappointment the market will price and this could actually end up being a driver for more Yen appreciation given some expected the whole 28trn in one year - which isnt impossible given the size of the Japanese economy (20x bigger than the package + not all of it is in fresh govt spending). UJ View/ Trading strategy - Sell USDJPY asap @mrkt 102 - 100TP1 99TP2 - or wait for the 30/40% chance of a bounce and sell from 103/4 on Tuesday: 1. So I see UJ moving lower from here to the 100's, until Tuesday where i see there being a risk of the market gaining some topside MOF stimulus surprise (which nonetheless is capped at 103.5-104 tops - in which i would sell) but more likely MOF disappointment (e.g. 5y package, less than expected actual spending) which will give UJ seller more ammo and could push us through the 100 level, assuming UJ has traded on the offer since Sunday open (which is likely imo)..
Short
by QuantumLogicTrading
14
BOJ: JPY V USD, EUR, GBP - WHAT THE OPTION MARKET IS TELLING US50 Delta ATM Volatilities: USDJPY - - $Yen has an ATM implied volatility curve of 55.95%mrkt 24.08%1wk 18.31%2wk 14.12%1m - Obviously we are aggressively steeper in the front end, with BOJ tomorrow and JPY MOF Fiscal Package details coming next week providing heightened vol for the 1day and 1wk vols - naturally we then see the curve tail off as the event vol fades. GBPJPY - - £Yen has an ATM implied volatility curve of 58.66%mrkt 25.93%1wk 23.02%2wk 18.30%1m - The same can be said about sterling yens ATM curve, adding that it is steeper accross the tenors as the recently heightened GBP risk/ BOE event vol is priced into the 1wks and 2wks greater relatively vs $yen, with 1ms also outperforming $Yen as the perceived GBP risk/ vol post-brexit carries higher vs the USD. EURJPY - - EUROYEN has an ATM implied volatility curve of 49.42%mrkt 22.82%1wk 18.03%2wk 14.23%1m - EUROYEN mirrors $yen from 1wk-1m as the term structure is very similar for eur vs usd (no significant event vol expected). Though we see a notable 6-7vol divergence in the current vol which is expected as $Yen expressions are favourable for BOJ out-performance positionings (USD a firmer based/ more widely traded) and £Yen are favourable for BOJ under-performance structures as BOE next week compunds the attractiveness in the downside of the cross (BOE likely to ease) which in turn increases the demand for £Yen expression on a BOJ no-show. 25Delta Risk Reversals (25d call vol minus 25d put vol - examines the relative demand) USDJPY - - $Yen RRs are +3 mrkt, +0.62 1wk, -0.67 2wk, -0.81m - Interestingly we are seeing a moderate $Yen topside coverage in the front end (e.g. current and 1wks) implying the market is hedging/ positioning for a BOJ Out-performance Surprise (call demand > Put). The RRs are quite small at +1 so i wouldnt say there is a huge consensus on BOJ HIT expectations. Nonetheless calls are likely being purchased to hedge underlying spot short positions in the near term as any $yen/ BOJ topside is expected to not last long and be faded aggressively - which explains the switch to negative RRs after the BOJ/ MOF events have passed. GBPJPY - - £Yen RRs are -6 mrkt, -3 1wk, -1.3 2wk, -2.2 1m - Understandably SterlingYen has a different RR structure as BOJ and BOE predispositions are priced into option structures, rather than just BOJ (as is the case for £yen and euroyen) - so we see a strong put bias, particularly in the front end (current and 1wks) as these cover the BOE and BOJ event vol. Unlike $Yen we see there is a clear trend for BOJ miss/ downside speculation as it is the logical chosen proxy, as a BOJ miss is highly likely to then be compounded over the current and 1wk terms as BOE hit expectations are priced in, accelerating the GBPJPY to the downside and RRs towards the LHS (BOJ miss = yen strength, BOE hit = Streling weakness - aggressive downside). Also put gbpjpy, automatically hedges any BOJ hit/topside risk as 1wk later the BOE is likely to ease so any yen downside arising from a BOJ hit will likely be smoothed somewhat by BOE easing induced GBP selling; thus lessening the negative impact or even turning the position back into the money.
by QuantumLogicTrading
6