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USDJPY/ GBPJPY: BUY $YEN IF DATA MISSES; SELL £YEN IF DATA HITSThe Risky BOJ front run trade using CPI inferences - I find it very interesting that the BOJ is releasing ALL of its key economic data (minus GDP) before making the easing decision, especially as we have already had CPI data this month so we will have an 2 CPI releases in one month which ive never seen happen before (CPI from JPY is usually due next week). - This to me indicates strongly that 1) All of the data released e.g. CPI, employment, retail sales, industrial production has some weighting on the BOJ decision and 2) that CPI especially has perhaps the strongest weighting on the BOJ decision as they are releasing 2 CPI prints in one month which means they brought forward the measurement by a week - this means they value the CPI print strongly. - Therefore, knowing this, in an ideal world either 1) ALL of the data will contract, which puts more pressure on a big BOJ easing package or 2) ALL of the data improves which eases the the pressure on the BOJ package - thus from here we are then able to take risk with an "educated" guess of what the policy will tend to be i.e. big or smaller. Long USDJPY if CPI less than -0.4% and generally weak/ miss other data: 1. The rationale is that a lower than expected and last print shows the JPY economy is decelerating even more aggressively than in previous months and therefore the BOJ will me MORE inclinded to ease heavier, as the data suggests there is a bigger problem. - Obviously the data/ CPI print imo acts as a function of BOJ easing, if we get massive misses across the slew of data then we should expect a bigger easing package than if there is only a slight miss - therefore we should treat our trades the same way. 2. Long USDJPY by xlots depending on the serverity of the data miss e.g. if CPI was -1.0% and unemployment ticked up to 3.4% i would do 3lots long usdjpy. If it was -0.5% and 3.3% i would do 1lot for example. Short GBPJPY if CPI is greater than -0.4% and other data generally hits/ is positive 1. The rationale is the opposite of the above - we assume if data improves that the BOJ will be less inclined to do a big easing package so we expect yen to remain strong so we go long yen and short GBP. - Once again the lot size is a function of the serverity of the data e.g. if CPI turned positive to 0.1% and unemployment dropped to 3% we would short 3lots. vs only 1lot if CPI ticked up only 10bps from last and unemployment ticked down only 10bps. Risks to the view: 1. The First risk is that data in general is considered to have "underlying trends" so the fact one print is outstandingly bad/ good might NOT impact policy e.g. thin about US NFP that was less than 100k and shocked markets - but it was a one off so didnt make the FOMC cut rates back. 3. Data underlying trends thus can reduce the weighting this data is given e.g. even if CPI improved to 0.1% from -0.4%, the BOJ could argue this is a one off print as the underlying trend for the past 6m+ has been negative inflation thus they will go ahead with a big easing package. - HOWEVER , the above point "3" in mind i believe data to the downside will be given a greater weighting than data to the upside, so we should have a short yen bias as weak data has been the underlying trend for most data points (especially CPI). -Further, i also think tail-end/ RHS/ LHS results will be given a proportionately larger weighting in their decision so this should also be reflected in our trading e.g. if CPI was -2% from -0.4% i would be a much much more aggressive buyer of UJ than if a -0.5% print from -0.4% is seen. The same can be said to the topside, if i saw +1.5% inflation from -0.4% last i would be a much greater seller of GBPJPY than if i saw -0.3% CPI from -0.4%.
by QuantumLogicTrading
3
BOJ EXPECTATIONS: EXCEED/ HIT - LONG USDJPY; MISS - SHORT GBPJPYBOJ Miss - Sell GBPJPY @Market price; 129tp1 - up to 800pips. 1. A BOJ miss can be considered as delivering the median expectations e.g. 10bps cut to the depo (-0.2%), 10bps cut to the LSP (-0.1%), Yen10trn increase in monthly JGB purchases & 50% Increase in Annual ETF purchases e.g. 3.3trn-5trn. Fiscal Stimulus Yen10-15trn. - The package above or less should be sold as the market expects this to maintain UJ at 105-6 level. - The short GBPJPY is a great trade anyway as you benefit from the BOE easing carry which should in turn move us to 125 (BOJ miss and BOE hit) - which the BOE 1m forward OIS rates market currently prices 25bps at 100% and the average expectations are 25bps and £50bn of QE (even more certain now as the BOE M. Weale - the most hawkish MPC Member moved to the easing side as Business optimism and PMI dropped to their 10yr lows) - thus GBPJPY can expect further downside even past the BOJ as the BOE is all but guaranteed to ease "most members expect to ease at the august meeting" - July BOE Minutes Quote. - Currently a BOJ miss is the most likely outcome - as many of you have seen in FX Yen has been brought aggressively as expectations have fallen, much a mirroring from the change in rates market where - For the 25th the 3m JPY Libor prices only a 6.65bps cut at to the key rate at 100% and on the same date the 3m euroyen August future prices only a 5.5bps cut at 100%. Though the further dated September 3m euroyen future prices a 9bps cut a 100% - likely a function of the market betting on more action being done in the september meeting (which makes sense). BOJ HIt: Buy USDJPY @Market price; 107-111tp - up to 700pips 1. A BOJ Hit can be considered as double or more the median expectations (in my opinion) - 20bps+ to the depo, 20bps+ to the LSP, Yen20trn+ to the JGB Purchases and 100-200% extra annual ETF purcases from Yen3.3trn to 6.6/9.9trn. Yen20-30trn Fiscal stimulus. - The package above or more IMO will allow $yen to trade to 111, and for a sustained amount of time. - The long USDJPY is the best proxy to play the "over-delivery" imo as USD is the most stable base, and has the most pips to gain on yen weakness - given FOMC hawkishness/ Hiking expectations give USDJPY topside even more impetus. - As above, the markets currently DON'T expect this result, as $Yen trades at the 104 level and rates markets price only 5-6bps of lowering. HOWEVER, if BOJ/ JPY Govt are to deliver a big easing package - one that smashes expectations (such as the one above) it will be now. The reason I think this is the case is below:
by QuantumLogicTrading
11
USDJPY: BOJ - FINAL THOUGHTS; FUNDAMENTAL/ TECHNICAL ANALYSISAt market price: 1. At 104 $yen offers an attractive buy and sell side - from the position of not knowing what the BOJ will do.. - I dont think that this pull-back to 104 is a material shift in risk-sentiment, rather i think this is a technical sell-off where the 107 pivot was hit (as highlighted) at which point BOJ/ UJ bulls lost confidence on their long positions which in turn caused a cascade of $Yen selling on profit taking - right into the 104 pivot. Also as you can see the price traded to 50% retracement of the risk-rally price (currently at 40%) after 4days - i dont consider this a fundamental risk-shift, such a shift would cause much more aggressive selling in fewer days e.g. 50% in 1-2 days, rather than 4 - this just looks like a technical pull-back and i wouldnt be surprised to see use move into the 105mids again. However, A break below 104 and I would agree that this is a BOJ market expectations move/ shift in risk sentiment to risk-off. 2. Most of you will know that I have been a $yen bull for some time citing policy divergence and future policy divergence as the reasoning. - So this in mind, going into BOJ/ Fiscal stimulus, where policy divergence is likely to increase, how does this affect my bullish $yen view? Bullish $Yen arguments: 1. The base case remains approximately 10bps to the depo rate, 10bps to the LSP, yen10trn to JGB and some 50-100% increase to the annual ETF from 3.3trn + the median expectation of stimulus is Yen15trn. - So from a bulls perspective i wonder, how much of this move is already priced in, given the 5-6% move from 100/101 certainly wasn't for free - I think at the 106/7 level pretty much all of the base view is priced e.g. 10bps depo, 10bps LSP, yen10trn JGB increase and yen10-15trn of fiscal stimulus.. - Thus to make a position worth while imo the BOJ/ Fiscal Stimulus is going to have to outperform the median expectation. Imo in order to see 111 and for $yen to trade at such levels as an average for the next 3-6, we would have to see the base case almost doubled; e.g. 20bps to the depo, 20bps to the LSP, yen20trn JGB and perhaps yen20-30trn fiscal stimulus (which has been mentioned). The case for BOJ beating expectations: - I think the market is somewhat underestimating the BOJ/ Govt at only 6bps given the BOJ is seeing an already -0.4% deflationary environment (-0.5% in Tokyo) when - 1) Yen is up 20-30% in 2016 vs most ccys - which is even more deflationary, they need a big package to reduce this; 2) 9 consecutive months of exports falling aggressively - deflationary and a function of strengthening Yen - needs to be combated by aggressive easing policy to devalue the yen for sustained period; 3) No policy change since January - so they have had 6 months of policy transmission, where the situation has worsened, to see now something drastic is needed; 4) Brexit/ Fed hike/ US Election/ China/ other risk-off factors likely to drive yen further up in the future - thus preemptive action needs to be taken now; 5) Great Pressure from JPY Govt/ public given -0.4%CPI is the rate they had back in 2014 when they started the massive QEE programme - basically hasnt changed in 2yrs - BOJ underpressure for results; 6) BOJ knows markets are ready to sell any "average" easing - so they know they need to be aggressive to beat/ get infront of the marker; 7) BOJ knows its perhaps the last and best time to reclaim any market trust/ confidence - anything less than extraordinary and market will continue selling any future BOJ policy as they are already inclined to do - Since BOJ/ Kuroda confidence is low as they have failed to deliver on several previous big occasions e.g. April. - If the above materialises I advise buying $Yen at market price, with a 109-111TP.
by QuantumLogicTrading
6
USDJPY: BOJ IN FOCUS - G20 KURODA & REUTERS ANALYST EXPECTATIONS28/29th June BOJ Meeting Expectations by 27 analysts polled by Reuters: 1. 23/27 (85%) expect easing from the BOJ. - The Median Analyst expect a 10bps cut to the headline interest rate to -0.2% and a Yen10TRN Extenstion to the BOJ's monetary base target to Yen90TRN a month (JGB and ETF Purchases). - One analyst expects easing in September, two in October and One sometime next Year. 2. Whilst the Median view is 10bps and 10trn extension, further to the right of the easing curve we observe some top investment banks expecting a more with GS forecasting a 20bps cut and an extension to the Monetary base from somewhere between Yen10-20TRN My View: 1. I am concur with those views further to the right of the easing curve - i expect BOJ to deliver 20bps and 10-20trn increase in monthly JGB/ EFT Purchases as the stagnant inflation situation (-0.4%National/ -0.5%Tokyo) requires some aggressive policy. - Reason for this thinking is that currently the Monetary base has been steady at Yen80trn for some time and the rate has been at -0.10% since January - so realistically is a 10trn increase and 10bps decrease going to be sufficient? - Lets look at the maths - a 10trn increase is 12.5% and a 10bps drop takes us to -0.2% - personally i do not think a 12.5% increase and a slight adjustment to the key rate will bring JPY underlying inflation into a uptrend - if 80trn and -10bps can't, i dont think 90trn and -20bps can - they need more e.g. 100trn and -30bps - a 25% increase in monthly monetary base + a significant decrease in the interest rate - bare in mind that the SNB has rates at -0.75% so the BOJ has a lot of room relatively to cut futher, it's not like its on the edge of economic possibility already when other central banks are already more aggressive. 2. Now whether they will deliver to the right/ aggressive side is up for question, as BOJ/ Kuroda have always been on the conservative side. Though in recent times the BOJ have come under-pressure by JPY Govt/ Abe so imo if they will ever deliver big - it will be now. - Kuroda shrugged off heli money (below) but he did communicate that there could/ should be a double effort from monetary and fiscal policy in order to increase the multiplier effect - which bodes well - we could see dramatic fiscal and monetary policy. Even if we fall short of cash dropping out of aircraft. Kuroda's comments at G20: - "Bank of Japan Governor Haruhiko Kuroda said on Saturday he would ease policy further if necessary to achieve its 2 percent inflation goal, while reiterating a commitment to continue with the current stimulus until prices are anchored there." - "If the economy's (recovery) trend continues, leading wages and prices to rise in a virtuous cycle, which is continuing, prices will eventually rise to the 2 percent price stability goal," - "We always examine risk factors for the economy and prices and will take additional easing steps if necessary to achieve the price stability goal. I'll explain that together with Japan's economy, prices and monetary policy at this meeting." - "Uncertainty will continue, including negotiations between Britain and the EU, which will take years. So we will be paying attention to such things," - "If it means that central banks are directly underwriting government bonds, or managing monetary and fiscal policies as one, that would be prohibited in Japan as well as other advanced economies, as lessons from history tell us," - "If governments utilize fiscal policy while central banks ease policy from the economic and price viewpoint, that would boost the multiplier effect on the economy. This so-called policy mix is nothing wrong as macro policy.
by QuantumLogicTrading
2
USDJPY: TECHNICAL ANALYSIS - MA, KEY SUPPORT, STANDEV, IV>HV, RRYen$ Technical analysis - Bullish but fundamentally driven this week: Key level close: 1. On the daily and weekly we closed above the 2nd strongest pivot point of recent times at 1.055 - this is very supportive as historically this is the strongest level (next to 100/101). MA: 1. We trade above the 4wk ma and the 3m MA is acting as strong support (black line) - this is a supportive/ bullish indication but we have been below the 6m MA since the beginning of the year as the 2016 safe havens have outperformed - this indicates we are seeing a risk-recovery which concurs with initial thoughts IV/ HV: 1. Realised Vols have also unsurprisingly come off, this is bullish but bare in mind that brexit has distorted some of the longer dated HV (still high) and caused the spike in the shorted dated HV. Relatively, Implied vols are steepening higher than HV - with 1wk, 2wk and 1m Implied vols trade at 23.84%, 19.42%, 15.28% vs HV 1wk 2wk 1m at 6.35%, 13.16%, 17.18% - so IV is greater than HV across the front end which is bearish - though imo this shouldnt be considered so as BOJ event vol premiums are likely the culprit for the curve steepening - especially at the 1wk-2wk tenors (vs realised) so this isnt necessarily bearish. Deviation Channels/ Support levels: 1. We Trade close to the top of the 6m deviation channel at 1.0700 as we witness a recovery rally, this could be condisered bearish as we could see resistance here, but as i said i think fundamentals are more at play here than the techs. Looking at the 12m SD channel, this is more appropriate and shows us trading just above the average 12m price at 105- hence there is definitely more room for upside to 110 and we have just crossed the middle regression line implying we are entering some yearly upside deviation now, with the +2SD resistance level at 110 which is in line with the price support level at 1.09-11. Risk-Reversals 1. 25 delta Risk reversals trade bearish for $Yen, with current at -1, 1wks at -0.4 and 2wks at -0.2 and 1m at -1 - this suggest the $yen has a slight downside bias but is potentially searching for direction going into the big BOJ meeting on the 29th - investors are not committing much to a delivery or non-delivery, as the 1wks trade nearly flat at -0.4 - maybe this will change over the course of the week, but it indicates that we may see $yen trade calmly before the storm as a pose to heavy positioning before the event. - Though 3m risk reversals trade with a clearer downside bias at -1.7 which shows the market expects $Yen to trade lower in the 3m term- likely a result of investors expecting the risk-off trend of 2016 to continue. Option Demand: Significant put vol demand around the 105.5 pivot point, highly likely to be investors betting on a bearish turning on the break of the level (though expiry in 2 days). Going forward we see more call demand, on Wednesday we have large 106.25 notional and thursday 107.25 notional respectively - likely buying a pre-event $yen breakout as investors usually prince in too much of a BOJ delivery. *Check the attached posts for indepth fundamentals*
Long
by QuantumLogicTrading
USDJPY: LONG UPDATE - RENEWED JPY FISCAL STIMULUS SPECULATION?I posted earlier with my 107 USDJPY breakout trade (see attached post) - one of the reasons I said to long USDJPY on the 107 break-out was due to JPY Govt stimulus speculation. In the last few hours we have seen fresh speculation of the JPY stimulus, with JPY20trn now being discussed/ proposed to be on the table - this renewed rhetoric is nothing but positive for the 107 breakout long trade i posted a few hours ago and supports it as YEN20trn is approximately $200bn, which is certainly enough new liquidity to give confidence to markets and spur risk markets onto fresh highs - further this JPY Govt stimulus is speculated to be combined WITH BOJ easing, so markets get a compounded risk rally since there are two potential drivers (BOJ cut rates by 10-20bps + add to maturity/ purchases of JGB and EFT). Plus today after seeing the RBNZ's dovish economic assessment (where an Aug cut is almost 100%), this gives risk markets even more fuel thus encouraging $yen to trade to the 109-111 levels i expect - though BOE K. Forbes hawkish comments negate some of this. The new JPY Fiscal stimulus speculation: 1. JAPANESE GOVERNMENT CONSIDERING 20 TRILLION YEN STIMULUS PACKAGE SAYS KYODO - "The government initially envisaged compiling a stimulus package of somewhat more than 10 trillion yen . But the size is likely to double as the package will now include projects for fiscal 2017 and beyond and increase "zaito" low-interest government loans by 6 trillion yen," Kyodo reports. 2. "The government initially envisaged compiling a stimulus package of somewhat more than 10 trillion yen . But the size is likely to double as the package will now include projects for fiscal 2017 and beyond and increase "zaito" low-interest government loans by 6 trillion yen," Kyodo reports. 3. "The stimulus could be even larger, they report. And able will look for the rubber stamp from the Cabinet in early August. About half will be earmarked for infrastructure." Trading strategy going forward: 1. Trading strategy remains the same from the 107 breakout post that i made earlier e.g. 109TP1, 111TP2 - all that has changed from the post before is that the strategy has been reaffirmed/ strengthened upon this renewed JPY stimulus speculation , given this was one of the drivers i cited to move USDJPY to the 109 then 111 level once the 107 confirmation level was broken. - In early asia trading, as yesterday, net risk sentment remains stable with safe havens gold, yen and bonds down as well as risk, though risk down slightly less. For the day, I expect risk-on sentiment to win as Thursday historically is the best day for stocks (before going into the friday end of week sell-off) + post market Wednesday some large firms posted outperforming earnings which should continue helping the risk appetite move higher (Intel + Morgan stanley beating EPS and revenue forecasts) when the main LDN and NY sessions get underway down the line. *Check the "USDJPY: BUY THE BREAKOUT" post attached for more details on the trade discussed above posted 7 hours ago*
Long
by QuantumLogicTrading
7
USDJPY: BUY THE 107 BREAKOUT - RISK-ON TO CONTINUE - BOJ/ BOEUSDJPY: 1 . Been watching $yen closely as my top 2 trades this week (along with GU). As expected/ foretasted 107 was the next key risk sentiment resistance level after 104 and after buying the 104 breakout i have confidence/ advise buying the 107 breakout - we have now crossed the 3m moving average at 106 which provides support/ confirms bullish move. 2 Risk has been depressed excessively in the past 6-months but more so directly after brexit - this risk rally (SP highs etc and UJ higher) isn't a fundamental change in risk sentiment imo (e.g. i dont forecast an UJ uptrend now) however i do believe this is a 2-4wk risk recovery before moving lower again back through the 104 level to the 102. 3. This risk recovery is being fueled by 1) JPY/ BOJ Stimulus hopes since the BOJ hasnt cut its rate since January the market expects strong easing from JPY Govt and BOJ. 2) Markets expect a 25bps cut in the Bank Rate and GBP80bn extension in BOE QE. 3) Several other CBs e.g. RBA/ RBNZ/ PBOC/ ECB are also expected to ease at some-point in 2016 so all speculations are being priced into this risk rally as upside. 4) As mentioned above, risk was depressed for several weeks into/ out of brexit so this is a recovery leg higher e.g. shorts profit taking/ washed out. Volatility: 1. Current 25 delta Risk Reversals RR trade negative at -1.7, indicating either 1) the market is long Spot UJ but covering the downside possibility with options or 2) Option speculators like their chances with UJ lower - given the bullish bias id like to think the first is true. 2wk RR covering the BOJ however surprisingly trade close to flat at -0.3 - i see this as the market really not knowing what to expect/ sitting on the fence. Usually we see a strong bias to put's or call's but given BOJ/ Kurodas history (under-delivery) but also the current situation it makes sense why the market is flat with positioning. 1. IV 1wk and 2wk is: 11.41% and 19.27% and realised is: 6.35% and 13.16% - IV outperforming HV is a bearish signal but given the way markets have been rallying it is unsurprising that demand has increased (i dont see this as a bearish sign). Notably we see a spiking of 2wk IV at 19.27 vs 13.16HV which covers the BOJ meeting, thus clearly there is alot of anticipation going into the meeting.. i expect 28th vol to increase as we get closer to the event which could cause UJ selling however, BOJ expectations will outweight this (e.g. if 20bps + QE is expected we will see UJ upside). Trading Strategy: 1. Buy USDJPY 107 break-out - should be 100pip+ squeeze as shorts are washed out as clearly there are alot of sellers in the market here who will have stops above the big fig (wait for confirmation e.g. high time frame close above 107.) 109TP1, 111TP2 - I don't see USDJPY breaking the pre-brexit recovery rally highs at 112 - if it we were to, this could perhaps signal a true shift in risk sentiment (e.g. market is now fully risk on). - Late now but as initially mentioned this trade combined with the short GU worked well at hedging the risk-on risk-off dynamics at play (see attached) - still if GU retestes 1.33/4 shorts are strong at this level. 2. Assuming my initial assumption is correct e.g. <112 is the terminal rate for this recovery rally, I will then turn net seller of USDJPY and sell to 107TP1 104TP2 100.5TP3 but I will post about that nearer the time. 3. On a side note, if we were not to break 107 (unlikely as safe havens are taking heavy losses and stocks continue to make new highs) this level could be the risk sentiment pivot, but i would update if that becomes the case. If we do not break 107 today, it should be tomorrow as thursday is the traditional risk-on day. Risks to the view: 1. Obvious risk to the view is that 1) JPY/ BOJ easing expectations wane which cause the bull rally to fade - something which is highly possible but more and more unlikely as we get closer (only 8 days away). 2) An unforeseeable risk-o
Long
by QuantumLogicTrading
5
LONG DXY/ USD VS GBP: HAWKISH FOMC LOCKHART SPEECH HIGHLIGHTSFOMC Lockhart was the 4th Fed this week to imo be relatively Hawkish with his words, most notably reinforcing with the others brexits near-term stability saying "Doesn't Expect 'Brexit' to Have Near Term Impact on Economy" and " So Far 'Brexit' Reaction Largely Orderly". Most interestingly though was Lockharts view on the FOMC's positioning for future rate increases, saying "Won't Rule Out Two Rate Rises This Year" - which is extremely hawkish given most expect 1 at the most.. Back up this sentiment by insisting that the Fed is "Fed Not Behind Curve, Has Time to Decide on Next Rate Move". Nonethless Lockhart did somewhat contradict his "rate expectations" by saying "Time for 'Cautious and Patient Approach' to Rate Policy" which surely shouldn't be the case if 2 hikes are coming - that would be on the aggressive side. All in all, Lockharts comments go hand in hand with my Bullish medium term USD/ DXY view (see previous articles) - I like the USD vs EUR, JPY, GBP, AUD, NZD in the medium term so long DXY/ USD is favoured, even more so if 2 rate hikes were to be realised this year. At current levels short GBPUSD is my favourite expression FOMC RATE HIKE IMPLIED PROBABILITIES - On the likelihood of rate increases, in the past 24 hours, from the Federal Funds Rate implied probability curve we have seen rates/ probabilities firm after yesterdays "risk-break" recovery, with a 25bps September/ Nov hike steepening to 17.2% from 11.7%(Wed), and Dec setting new highs at 35.9% from 29.5% (Wed) - Dec also went on to double the probability of a 50bps hike to 5.1% vs 2.8%(Wed), giving Lockharts comments some weight. FOMC Lockhart Speech Highlights: -Fed's Lockhart: Fed Not Behind Curve, Has Time to Decide on Next Rate Move -Lockhart: Time for 'Cautious and Patient Approach' to Rate Policy -Lockhart: So Far 'Brexit' Reaction Largely Orderly -Lockhart: 'Brexit' Will Increase Long Term Uncertainty -Lockhart: Doesn't Expect 'Brexit' to Have Near Term Impact on Economy -Lockhart: Bond Market Yields Largely Reflect Flight-To-Quality Buying -Lockhart: Too Soon to Say 'All Clear' for Financial Markets -Lockhart: 'Brexit' Not a 'Leman Moment' -Lockhart: Still Expects U.S. to Grow by 2%, Expects More Job Gains -Lockhart: Economy is 'Performing Adequately' -Lockhart Says Fed Has Time to Decide on Next Rate Move -Fed's Lockhart: Presidential Election May Be Boosting Economic Uncertainty -Fed's Lockhart: Won't Rule Out Two Rate Rises This Year
TVC:DXYLong
by QuantumLogicTrading
LONG USD VS JPY, EUR, GBP: HAWISK FED BULLARD - FED FUNDS RALLYBullard is the lone Fed official forecasting just one additional rate increase, and expects modest growth over the next two and a half years. But he reiterated Tuesday he's not expecting the economy to head south. However, did go out of his way to mention a relatively dovish point "We Have Some Ammunition if We Need it During Next Recession". Nonetheless he remained hawkish net on the margin, reiterating FED Georges hawkish comments regarding the labour market "About as Good as It's Ever Been", whilst using the June NFP print to flatten any questions regarding the low May print saying "Strong June Jobs Gains Showed May Report Was 'An Anomaly'". Similarly Bullard continued with Georges sentiment of the US's post-brexit robustness stating that the "Market Reaction to Brexit Shock Was 'Satisfactory,' 'Orderly'" - and infact surprisingly pushed this hawkish brexit sentiment on to new levels of "Ultimately the Brexit Impact on U.S. Economy Will be 'Close to Zero'". This is perhaps the most hawkish/ upbeat statement i have heard form a key Fed member since the decision which is positive given Bullard's naturally dovish stance. Bullard also stressed the need for a solid US Fiscal package to boost demand, where i have to say fiscal stimulus has almost gone forgotten about in the last 7-years post crash, given the dominance of the central banks, quoting "U.S. Badly Needs Fiscal Agenda for Boosting Economic Growth". Once again todays "FED speaker tracker" continues to add to my long $ view in the medium term. Today already we have seen front end rates continue their aggressive recovery this week, with the fed funds rate implied 25bps hike probability now trading for Sept/ Nov at a whopping 18% vs 11.7%Mon, with Dec trading at 36.3% vs 29.2%Mon . 10y UST (TNX) rates trade up another 4% today after a 5% gain yesterday, whilst 30yrs trade 3% up on the day (TNY) - as global risk rallies. Whilst USD is trading a little weaker in the immediate term as it readjusts lower for risk-on USD selling, long USD/ DXY is my medium term view as we continue to see the US FOMC Rate curve aggressively steepen, which is likely to continue for the next week at least - steeper implied curve means hike is more likely - more likely or realised hikes = increased (in the medium-term) dollar strength. Further, we expect dovish/ easing BOJ BOE ECB over the same period, this monetary policy divergence compounds the long $ view against its 3 biggest crosses (hence the long DXY expression) Medium term trading strategy: 1. The best expression of this medium term USD view is long DXY - as above I hold 8/10 conviction views for a number of the heavily weighted USD basket crosses based largely on likely monetary policy divergence in the medium term (FOMC Hiking whilst BOE, BOJ & ECB ease/ cut) e.g. LONG USDJPY @104 - 106.3TP1 109.5TP2; SHORT EURUSD @1.11 - 109.3TP1 107.5TP2; GBPUSD @1.34 - 131.2TP1 128.5TP2
Long
by QuantumLogicTrading
8
BREXIT AND GEO-POLITICAL AFTERMATH: BUY USDJPY - HOW TO TRADENow that the Brexit risk has been realised the mentioned pairs above will share some correlation this week as the market changes between risk-on and risk-off as MANY on the events continually drive the sentiment shifts. My Plan & Expectations USDJPY 1. My conviction for UJ is long 8/10. -UJ traded to lows of 98.9 in the midst of the brexit hype, as the market hunted for risk off. Further, as with GBP it seems entities over the weekend have increased their JPY exposure to account for the increased percieved risk within the market causing UJ to open lower at 101.6 - However, over the weekend the BOJ had a meeting with other Japanese officials to discuss their plan (an easing plan likely) to combat 1. their inflation problem and now 2. the JPY's safe haven demand strength - both of which are cured by 8/10 aggressive easing policies by the BOJ - Thus I expect the BOJ to hold and emergency meeting this week announcing these changes to have immediate affect as UJ at 100 severely puts the brakes on their inflation growth target. - Further, as previously mentioned the BOE, SNB, FOMC and ECB (among others) have all said since the brexit vote that they are prepared to provide liquidity to markets and their rhetoric has been very dovish. - Thus the BOJ's new easing package which is likely to be aggressive e.g. 20bps rate cute and a large increase QE, will help depreciate the currency through increasing supply and reducing jpy demand. Further, the supportive/ dovish stance of the worlds central banks (particularly BOE and FOMC) will help ease risk aversion which in turn SHOULD reduce JPY demand therefore helping UJ trade better to the upside. So my trading plan for UJ is to buy at levels <102 - 101/2 is ideal (we are unlikely see 99 or 100 again as the risk-off impetuses have died). UJ should hold this range between 101.2 and 103 until CB meetings are in place - I will be holding UJ in the long term through to 110-115 at least. I have 8/10 long conviction for UJ Volatility update: Current UJ ATM 50 delta vols trade at 37.5%, which is surprisingly 3-4x higher than it was last week (the risk and volatility may not be over). 1wk UJ ATM 50 delta vols trade at 20%, significantly lower than current at 37.5% - I think this is a function of the central bank meetings expected this week which are inflating current volatility, with 1wk far vols lower as the events will have elapsed already. 1m UJ ATM 50 delta vols trade up on the week at 15.5% though the time curve is flattening meaning UJ vol is falling over time - lower vols = better conditions for UJ buying. Current UJ Option demand is skewed significantly to the downside, with Puts 40% vs calls 36% thus puts are in demand by about 10% more than calls - this supports nearterm risk-off views (RR -4). USDJPY as a measure of market risk. I still suggest using UJ as a measure of GBPUSD market risk - the volatility seemingly isnt over, and with near term uncertainty high, it is prudent to track UJ and use breaks of its 101.2-103.2 range as signals of net risk on or risk-off commitment .e.g. UJ higher risk on (jpy selling), UJ lower risk off (jp buying). The risk off move for GU imo is lower in this environment, and the risk-on move is higher. Thus, IMO UJ and GU are sync'd, and the two should be used as a tool.
by QuantumLogicTrading
1
LONG USDJPY @105.8: NEUTRAL FOMC; DOVISH & EASE BOJ & RISK-ONWe had the best possible outcome for FOMC's Rate decision and Fed Yellens speech which was neutral IMO as expected, with the Economic Projections being dovish, downgrading the projected rate hike cycle. We now look to BOJ. Trading strategy: LONG USDJPY (possibly short also GBPJPY for longer term investors or investors that want to hedge against a hawkish BOJ) TP @>107 = 100pips at least - SL @104.9-105.2 Reasoning - FOMC overall was neutral, we had lower projections but Yellen remained mildly upbeat, telling the market to shrug off the short NFP report (quite rightly). - So this means $ demand/ supply remains flat. - The main driver of the LONG UJ play is on the JPY side. Given that FOMC was flat, this means JPY "risk-off" and uncertainty buying which would have arisen if the fed was aggressively hawkish/ hiked was neutralised - meaning JPY "rate hike induced" safe haven demand was neutralised as instead the FOMC helped risk trade higher = LONG USDJPY as JPY demand falls - So now we have a situation of neutral USD and neutral JPY as there was no rate hike to unsteady markets and cause JPY to be brought - So the driver of the LONG USDJPY is the fact that IMO the BOJ will be aggressively dovish and likely to cut rates - their core and CPI prints are consistantly below 0% at -0.5% for Tokyo CPI and Core, with National at -0.3% for both. These CPI prints are the average print for the last 6 months meaning BOJ policy has been inefective in reaching their goal as inflation is stale and not rising. Thus IMO they have to CUT and EASE and be DOVISH = Long USDJPY - Further, Kuroda BOJ head said he is aware of JPY trading strongly due to its safe haven properties and he has stated he is prepared to fight this risk-off led Yen appreciation - this means HEAVY easing to negate the JPY risk-off strength and weaken the currency = long USDJPY - Finally, a dovish BOJ helps ease the risk-off sentiment in the market at the moment (stocks falling and gold rallying) as BOJ easing puts more liquidity into the markets - calming the risk-off sentiment means LESS JPY buying and MORE JPY selling = LONG USDJPY Evaluation - So with USD as a stable denominator, I expect the BOJ to heavily ease in order to 1) improve their inflation performance closer to their target 2) to devalue JPY from the risk-off buying that brexit uncertainty has caused. - Further, UJ is the best expression of the short JPY play as EUR and GBP are both comprimised by BREXIT uncertainty - which is constantly trying to trade eur and gbp lower - hence a long ej or gj is not advised - UJ is the least affected of the majors by brexit - *see my dynamic straddle post attached for more details* - on that note one may argue AUD or NZD could be used for the long, since they too are even less affected by brexit downside, which is true, however i dont have enough experience in those markets - if think there is a better denominator than USD for the long then by all means use it - however IMO USD is the best of the bunch for future dollar demand as they are the only Central bank to be hiking NZD and AUD are still cutting. - Also UJ imp volatility is finally falling with 1wk implieds dropping to 12.55 (-3.45), which improves the environment for buying. Plus as you can see below Historical Vol is also falling, once again illustrating that price may be ready to start rising again - low vol = more buying. Plus the ATR trades lower than average which is a bullish sign - bull markets range less. - And we are still oversold massively at -2/3 SD of the mean of the weekly. Plus we trade close to the handle at 105.35 which is the strongest support level in USDJPY history thus helping upside from here (unless we break ofc). Comments welcome
Long
by QuantumLogicTrading
8
DYNAMIC STRADDLE: USDJPY & GBPJPY - TP FROM BOJ & FOMC EVENT VOLThe best Idea to play BOJ and FOMC from a risk-averse perspective is to own both in a Long Straddle Strategy Dynamic Straddle: Long USDJPY & Short GBPJPY - TP from volatility & Event likely hoods TP levels = cannot be greedy else you may miss one trades exit point so <25 pips when it goes in your direction for each - total TP = 50pips as 2*25pips Reasoning - Traditional Straddle involves would be long and short the SAME cross.. - However i suggest we long USDJPY as UJ has proportionately MORE upside possibility: 1. FOMC is likely to be neutral-Hawkish, this will help UJ trade flat/ higher = Supports long - - *FOMC PARADOX* important to note that in this sensitive risk-off market if the FED is too hawkish/ hikes it can cause a UJ sell off, as higher rates means greater economic/ market uncertainty as liquidity and financing becomes tighter (despite rate hiking usually making USD trade higher through increased $ deposit demand for higher rates) 2. BOJ is likely to be dovish, this will help UJ to trade higher (especially in this risk averse market - easing helps calm mrkts) = supports long 3. USDJPY ISNT directly impacted by BREXIT fears as GBPJPY as USD and JPY can be considered safety assets, this helps USDJPY trade higher = supports long So we have 3/3 for long USDJPY. - Now to hedge this trade AND benefit from possible downside, we SHORT GBPJPY as GJ has proportionately MORE downside possibility. 1. FOMC neutral-hawkish, drives risk-off momentum (higher rates reduces market liquidity and undermines economic growth thus increasing uncertainty) which drives demand for Yen/JPY, increased demand for JPY supports short GBPJPY 2. BOJ being dovish/ easing potentially helps JPY sell off - however, GBPJPY will be the least sensitive of JPY seller of the JPY crosses, as GBPJPY is the perfect play for Brexit and risk-off, hence in the long run JPY selling wont last long in GBPJPY as once JPY is cheap, buyers will enter to continue hedging/ speculating on brexit with the favourite pair, poor potential/ long run JPY sell side = supports gbpjpy short 3. GBPJPY is directly impacted by Brexit uncertainty in two ways. 1) as investors wish to sell GBP as the uncertainty is only negative for GBP (especially when polls are at 55%). 2) as Investors wish to buy JPY for their "safe haven" asset play. UJ only has the JPY buying to push it lower, which is limited/ offset further as USD buying can also be considered a "safe haven asset) = Supports short GBPJPY We have 3/3 for short GBPJPY Evaluation. - We have 3 points supporting both LONG UJ and SHORT GJ - AND by playing this trade we are able to gain from ALL eventualities, we dont have to guess the BOJ or FOMC outcomes since we have a LONG and a SHORT we have covered ALL eventualities. - Also from a vol perspective, GBPJPY risk reversals continue to become negative by a significant amount 1wks lost 0.6 to -2.1 (from -1.5), so investors continue to demand GBPJPY downside puts for speculation/ hedging - supporting the short. - USDJPY ATM volatility, sold off significantly with 1wks losing 3.55 to 12.45 - lower vol in UJ supports buying. *Any questions on why i think FOMC will be neutral-Hawkish or why BOJ will be dovish-easing please ask in the comments*
by QuantumLogicTrading
BUY USDJPY: SUP LEVEL @105.5 & VOLATILITY SELL-OFF @ HIGH LEVELSBUY USDJPY @106.5 or @107.0 - SL @105 - TP @109-11 based on: $YEN's historical most important support level - The 105.5 Key level will more than likely hold as it has many times before - At 105.5 there are 3 significant UNSUCCESSFUL tests of the level over the last 3 years thus it is a great entry point. Also another plus is if you look at the monthly chart you will notice 105.5 is the 2nd most important level in $Yen's 20y+ history, the 1st most important/tested is the 101 level. - Further, over the last 3 years the level has been tested 4 times in total and it only broke once when USDJPY rose to 127 so that means LONG at this level has a 75% chance of success (based on the simple discrete math). - Plus, around 105.5 at 106 and 106.5 these also provide "mini" strong support levels which i think are great, low risk entry points for long positions. Normal Distribution and High Price Standard Deviation Volatility - as you can see the weekly bar has closed below the 5 year -3SD (and -2SD 2.5year) once before, by the red bar 5 weeks ago which was also at the 105.5 support level- at which point USDJPY0.02% rallied back up to 111.5 from 105.5 after closing below the -3SD and -2SD line and on the 105.5 so we could see topside like this again. - in addition to this, it is worth noting that the 5y -3SD blue line that was violated but rejected 5 weeks ago and is being tested again, based on normal distribution theory, says that prices touching this line have a 99.5% probability of reverting BACK UP towards the mean at 122.5. The -2SD 2.5year line that was also violated has a 95% probability of retracing up towards the mean at 126. Historical and implied volatility at all time highs - a reversal - Historical volatility across the board (5,10,20,30,60) is trading at all time high levels now and at some point these levels have to come down, investors cant keep pushing vols higher, which in turn, means selling of UJ must come to an end soon and we should see an upward recovery run. - The same is true about Implied vols which are trading at 15.75% which is in the (upper) 90th percentile of the last 2.5 years of days, meaning implied vols 90% of the time have been lower than this - thus a reversal is more likely at these levels. HV is likely in the 90%tile or greater also - Usually a sell-off in volatility precedes buying of UJ. - See more info on vols here: www.tradingfloor.com Downside analysis 1. The obvious risk of the Long UJ play are that the 105.5 level doesn't hold, in which case i believe the long squeeze caused, as a result of all long SLs being hit causing a cascade of selling could take us down to 102/3 - however this is easily avoided by keeping tight stops at 104.5-`105 dependent on your risk appetite. - even with a 150pip SL it still returns us 3x returns with a TP target of 111+ 2. The markets may trade risk off in the coming weeks as the macroeconomic envrionment is filled with uncertainty e.g. FOMC, BOJ and UK EU Referendum, in which these events are compounded by the fact that risk markets (spx etc) are currently trading at all time highs, making a reversal in their direction and risk-off tone more likely. Furthermore other risk-off assets such as Gold and Bonds are trading well. All of which may combine into a strong risk off environment that fuels the JPY follow the bullish trend with its counterparts (bonds and gold) and enabling UJ to push past the 105 strong hold. - However, these issues are all displaced by a tight SL as advised at 104.9 (to benefit from the 105 key lvl supporrt potential)
Long
by QuantumLogicTrading
4
Structure Trade & Bullish Gartley All In Play on USDJPYFollowing my post from yesterday, the market has now come back a little little deeper than where i said it would but it's still a valid long trade in terms of the structure trade i posted yesterday and if you're a pattern trader instead, the market has given you another alternative by forming another gartley pattern which has just completed. I'm still gonna be staying out of this trade because my second target from the first gartley i posted a few days ago is still open. Another good thing about this trade is the fact that my RSI is showing oversold conditions so i expect a pop back up from this point, so only time will tell now. www.tradewithme.co.uk
Long
by JoMarshall
9