JPY Yen - Not A Fan Until We Test Lows$JPY needs to test these multiyear lows before I'm a fan of buying the yen again. We are attacking this play via GBPYJPY last 2 weeks. Giving it a rest for now - Need to test these lows!
6J1! trade ideas
Time for the Yen to blast offThe YEN is a flight to safety, much like Tbills. We should see a continued push into the Yen throughout the next year with a target that is roughly 20% higher.
What Next For The Yen?In Karate, offense is the best form of defence. The BoJ knows it. Japan faces a raft of economic headwinds which shows up in Yen’s performance.
The BoJ intervened strongly last year to support the currency when it skirted around current levels. Yen is hovering at those levels again. BoJ is anticipated to act. Such interventions typically mark the bottom.
This paper explores recent economic data to analyse the potential for monetary policy changes by BOJ.
JAPANESE MACROECONOMIC CONDITIONS HAMPER YEN FROM STRENGTHENING
Starting September, the Yen has trended lower relative to the USD among currency majors.
The Yen has weakened the most. As described previously , BoJ’s aims to kickstart the economy onto a high growth trajectory to exit decades of painful deflation.
Recent macroeconomic data indicates weakness. This reaffirms the need for continued loose monetary policy. However, a frail Yen poses a different type of challenge for the BoJ with higher import costs for fresh food and fuel.
This leaves the BoJ in a predicament between loose monetary policy and intervention to support the Yen. What does recent inflation, GDP, and wage data point to?
Inflation
Inflation declined M-o-M in September. CPI cooled to 2.8% falling below 3% for the first time in a year. Importantly, Japan’s producer prices are now below 2% in a sign that inflation might have peaked.
Consumer prices will fail to prevail above 4% for long with input prices moderating. The BoJ expects inflation to persist until March next year at current levels and to cool towards target rates in the following 12 months.
GDP Growth
The Japanese economy shrank 2.1% YoY in Q3. This is far below expectations of 0.6% decline and a sharp slowdown from +4.5% growth in Q2. Slow economic growth makes economic stimulus essential to sustain it.
Wages
Nominal wage growth continues to decline. Real wages are even more concerning. Wages have declined for the last 18 months when adjusted for inflation.
Next Shunto negotiations are set to complete by mid-Jan 2024 with outcome remaining uncertain. The BoJ highlighted that wage uncertainties and price-setting behaviour pose upside risk to prices.
Meanwhile, high inflation will keep impacting real wages, affecting people's ability to spend.
THE BANK OF JAPAN IS STUCK BETWEEN A ROCK AND A HARD PLACE
At the October monetary policy meeting, the BoJ announced changes to the bond yield cap. The Yield Curve Control (YCC) policy and range were kept unchanged.
However, a small modification was made to change the 1% JGB yield cap from a rigid one to a loose reference. These changes hint at BoJ setting itself up for the eventual roll-back of the YCC policy altogether.
Next BoJ policy meeting is set for December 19th. The BoJ will likely maintain stimulus and hold rates low amid feeble consumer & business spending.
The policy change will be through YCC dismantling, impacting the JGB market. It will require careful planning and deft timing.
Meanwhile, the BoJ may intervene to stem continued Yen weakness. The officials have expressed this sentiment over the last two weeks via warnings for participants shorting the Yen over the past two weeks.
Japan’s Ministry of Finance (MoF) intervened three times last year, injecting USD 68 billion to support the Yen when it was trading near 150/USD. These interventions, unannounced, led to sharp and unexpected currency moves.
Unlike previous exchange rate-based interventions, the BoJ’s current predicament revolves around volatility and public perception.
Reuters reports that if Japan aims to prevent yen appreciation, the MoF will issue short-term bills to raise Yen, which is then sold in the market to weaken the currency. Alternatively, to curb Yen depreciation, authorities will tap into Japan's FX reserves, exchanging dollars for the Yen.
In recent weeks, Japanese authorities have issued warnings and expressed readiness to intervene as the Yen continues to weaken, despite a moderating USD.
Masato Kanda, Japan's top currency official, emphasized the urgency of their judgments and the potential for intervention, resonating with rhetorics used a year ago.
MIXED SIGNALS FROM CURRENCY DERIVATIVES MARKETS
Although asset managers are not positioned as net short as they were in late-September, they increased their net short positioning (weakening Yen) last Tuesday. Similarly, leveraged funds also increased net short positioning sharply last week.
Options markets contrarily signal strength in the Yen. P/C ratio for CME Japanese Yen Options (JPU) is 0.42 implying two puts for every five calls. JPUs are quoted with the Yen as the base currency so call options express a view of the Yen strengthening.
Moreover, bullish bets have increased heavily over the past week. Specifically, nearest monthly and weekly contracts (JPZ3 and WJ4X3) show Yen strengthening in the near term. Bullish bets in December options outnumber bearish bets by three times.
Although put open interest (OI) is concentrated near current levels with the highest OI at 0.0066 (151 in USD/JPY), call OI is more spread across with a large OI at strike of 0.0069 (145 in USD/JPY) which has ballooned over the last week. This signals that options market expects Yen strengthening by next month.
Finally, implied volatility on JPU is near its lowest level since March 2022.
Source: CME CVOL
Options skew on JPU is close to one, indicating that premiums on calls and puts are equally priced. Convexity remains elevated signalling investor interest in OTM options suggesting likelihood of sharp moves ahead.
HYPOTHETICAL TRADE SETUP
Given 12-month low implied volatility, a position in JPU can yield cost-effective protection against sharp Yen moves.
Alternatively, with the anticipated stability in Japanese interest rates, a short futures position in CME Japanese Yen futures, as previously discussed in a paper , is a viable approach to capitalizing on Yen's expected weakening. We can tap into JPU to safeguard this position against unforeseen risks of yen strengthening from BoJ intervention.
Furthermore, CME offers weekly options for Japanese Yen futures, expiring from Monday through Friday of the week. This enables investors to attain short-term exposure on a more focused scale, accompanied by lower premiums compared to monthly options.
A long call option position in JPUZ3 (expiring on December 8) would benefit from a BoJ intervention.
The trade setup consists of an entry at a strike of 0.0068 (JPY 147.0588) in JPUZ3 call options. These options are at a delta of 25 and expire in 30 days providing a good trade-off between low premium and adequate exposure to the underlying.
As of settlement on November 17th, premium for these options stood at USD 245 at an implied volatility of 8.26%.
Source: CME Options Calculator
The position breaks even at 0.00682 (JPY 146.6275) and turns profitable when (a) underlying futures price increases above strike price, and/or (b) implied volatility increases.
Source: CME QuikStrike
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
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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. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
JPY Futures aggressive Big deal was detectedExtremely Aggressive Yen Call Spread Placed on Nov 17. But, It is crucial to comprehend that the purchaser of a forceful spread doesn't anticipate the price reaching its target zone. Instead, he simply require strong movement towards the price zone to earn X2 the amount or more. We will monitor the participant's conduct further to grasp his intentions and exit plan from the market
We do the best research as we can to find new opportunities in the massive amount of information every day to help you make data-driven trading decision.
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JPY long sentimentIn the last 3 days, the increased interest of options market participants in the 0.00685 call has been noticed. The buying is systematic, but in small volumes and with a significant time lag. Such behavior is not typical for insiders, so we are most likely dealing with professional speculators. The purchase of this share is logically justified: the volatility of the central strike is extremely low, and from a graphical point of view, speculators are counting on a correction to the liquid area of emotional buyers. At the same time, we define the level of 0.006775 as an indicator, the break of which will confirm the correctness of this sentiment. Before the break of this level, it will be extremely risky to open long positions.
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Micro USD/JPY Futures: Capitalizing on USD strength against JPYOur View
We expect the Yen to remain weak against the USD for the remainder of the year, supporting USD/JPY long positions. We believe the BoJ is more concerned about slipping back into deflation and wants to avoid raising rates until it is certain that sustainable 2% inflation has been achieved - supported by higher wage growth translating into higher spending.
Our outlook is supported by the latest economic data (inflation, wage growth) which appears to be consistent with the BoJ’s assessment that sustainable 2% inflation remains a hurdle, reinforcing the need for maintaining ultra-easy monetary policy.
Expressing Our View
We favour the hypothetical trade setup below in order to express our view.
Long USD/JPY Micro Futures:
We favour taking a long position with entry at the present level of 144.45, target level of 151.00, and stop loss at 141.30. Immediate resistance is sighted around 145, if this level is broken, the contract may head further upwards towards 151.00. This setup delivers a reward: risk ratio of 2.08x.
• Entry Level: Present level of 144.45
• Target Level: 151.00
• Stop Loss Level: 141.30 around 50MA
• Profit at Target: 1519.84
• Loss at Stop: 750
• Reward: Risk Ratio: 2.08x
Swing Trade Journal - 6JSwing Trade Journal - 6J
MFI: Good
Algo: Good
The information and trading activities shared within this online trading journal are solely for the purpose of personal record-keeping and forward testing. It is important to note that any trades, strategies, or insights presented here are not intended as financial advice or recommendations for others to follow.
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Where is the Yen HeadingInterest rates are to asset prices, like what gravity is to an apple, once said Warren Buffet. Low interest rates imply low gravitational pull to asset prices. Similarly, a loose interest regime when faced-off against a fierce monetary stance, can send the former currency deflating at an alarming clip.
This paper peeks into the Japanese macro environment. It then contrasts it with the situation in the US. The sentiments among the respective central bankers amid the macro forces at play will dictate the path ahead for the Yen.
Bank of Japan's (BoJ) "looser for longer" policy when weighed against "higher for longer" Fed’s stance, points to Yen weakening to JPY 155/USD by the end of the year.
Accordingly, this paper posits a short position in CME Japanese Yen futures expiring in December 2023 to gain from a weakening Yen with an entry at 0.0069445 followed by a target at 0.0064600 and hedged by a stop loss at 0.0074075, delivering a reward-to-risk ratio of 1.05x.
FOREX MARKETS ARE A WINDOW TO MACRO SENTIMENTS
The past two weeks have been eventful in FX markets. It has been marked by volatility and uncertainty with fresh fears of rate hikes following Fed’s hawkish tone at Jackson Hole and strong economic data. An otherwise stubbornly robust US labour market has finally started to show signs of cooling.
The fears around and the resilience of the broader US economy is evident in the performance of the DXY as shown by the chart below.
Even as the path ahead for the USD remains uncertain, its strength against the Yen looks far more certain.
RECESSION DEFYING RESILIENT US ECONOMY
The Fed has maintained a hawkish tone. Why? Fed is data driven. And the data points to a resilient US economy with inflation and consumer spending rebounding. However, last Friday's job market data finally points to some cooling.
The US labour market has shown incredible resilience in the face of a slowing economy. The data from JOLTs survey highlights that job openings in the US have declined for the last three months and now stand at a 2.5 year low but remains at elevated levels.
The job openings to unemployed ratio is at 1.51. Typically, this ratio should be between 1.0-1.2 in line with moderating inflation.
The PCE price index for July was released last Thursday which showed a higher-than-expected US inflation reading after almost a year of cooling inflation. It was not entirely surprising as a more moderate increase was expected given the moderation in base-level effects.
Crucially, core inflation rose to 4.2% from 4.1% highlighting that underlying inflation remains stubborn.
The PCE release points to consumer spending in the US 0.8% higher MoM in July, across both goods and services. Spending grew at its fastest pace in six months potentially risking renewed spike in inflation.
Fresh inflation risks in the US have been driven by rising fuel prices. Oil prices have risen due to supply cuts from Saudi Arabia. Gasoline pump prices are at its highest level for the year at USD 3.83/gallon as of end-August as per American Automobile Association.
Food prices have also been on the rise globally driven by supply imbalances.
STAGFLATION FEARS ARE SURFACING IN JAPAN
Stagnation and tepid demand best describe Japanese economy for decades now. BoJ is resolute in maintaining ultra-low interest rates in its effort to drive demand.
BoJ has had mixed success in stimulating its economy. As stagnation recedes, stagflation fears loom. Stagflation is an economic condition of stagnating economy combined with high inflation.
Inflation in Japan has been on the rise for the past year, driven by a surge in global commodities (food & fuel) and the effects of higher prices in other countries.
Loose monetary policy along with a higher deficit over the past year has weakened the Yen 5% against the USD.
With BoJ committed to further stimulation, the Yen is likely to continue weakening. Notwithstanding tweaks to its YCC (yield curve control) policy and BoJ's FX market intervention, the BoJ has reiterated that its focus is on maintaining stability rather than strength in the Yen.
Wage growth this year was driven by the Shunto negotiation in 30 years of 3.8% increase in base pay. However, real wage growth remains low. Wage growth will have to continue sustainably, rather than through sporadic, one-time, increases.
Japan is at the cusp of exiting decades of deflation. Despite CPI above 2% target, BoJ fears that it is premature to declare victory as pace of services inflation remains moderate. This might push BOJ to maintain monetary policy loose for longer to ensure that Japan doesn’t tip back into deflation.
This continued dovish stance risk pushing the USD/JPY pair to 155, forecasted Goldman Sachs FX strategists. However, if BoJ pivots to being hawkish, JPY is expected to strengthen to 135/USD.
TRADE SET UP
Using CME’s Japanese Yen Futures, investors can secure exposure to the Yen. Each lot provides an exposure to 12.5 million Japanese Yen with exchange maintenance margin requirements of USD 3,300 per lot (as of September 4th). Each pip expressed as 0.0000005 per JPY increment delivers a P&L of USD 6.25.
The proposed trade set up comprises of short position in Japanese Yen Futures expiring in December 2023 (6JZ3) with an entry at 0.0069445 followed by a target at 0.0064600 and hedged by a stop loss at 0.0074075, delivering a reward-to-risk ratio of 1.05x.
• Entry: 0.0069445 (~JPY 144/USD)
• Target: 0.0064600 (~JPY 154.8/USD)
• Stop: 0.0074075 (~JPY 135.0/USD)
• Profit at Target: USD 6,056.25 (( /0.0000005 = 969 pips x 6.25)
• Loss at Stop: USD 5,787.5 (( /0.0000005 = 926) pips x 6.25)
• Reward-to-Risk: 1.05x
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. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Short the YenTrendCloud is lining up with several supply zones worth trading. Watch for big winning moves off of these zones
YEN INDEX ANALYSISYen is at key level.
Decision has to be made, either support will hold or it will smashed down to next level
Short the on the Japanese YenDowntrend on the 4 hr and 60 min
this is a 50% fib retracement level on the 15 min chart inside of a supply zone that has a 4hr TrendCloud component to it.
Dollar’s Fate Following US Debt DowngradeVideo discussion:
1. What will happen to the US bonds themselves?
2. What will be the impact on the US dollar and other currencies?
3. How will inflation be affected?
We will also discuss the relationship between the US Bond, US Dollar and all the other Currencies.
Reference for trading in currencies:
CME Euro FX Futures & Options
Minimum fluctuation
0.000050 per Euro increment = $6.25
CME Japanese Yen Futures & Options
Minimum fluctuation
0.0000005 per JPY increment = $6.25
CME British Pound Futures & Options
Minimum fluctuation
0.0001 per GBP increments = $6.25
CME Australian Dollar Futures & Options
Minimum fluctuation
0.00005 per AUD increment = $5.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. 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
JPYFinancial Losses: Trading in the Forex market carries the risk of financial loss. It's important to carefully assess your financial situation and only invest funds that you can afford to lose without affecting your lifestyle or essential financial obligations.
JPYFinancial Losses: Trading in the Forex market carries the risk of financial loss. It's important to carefully assess your financial situation and only invest funds that you can afford to lose without affecting your lifestyle or essential financial obligations.
Japanese Yen Is Trading At The SupportJapanese Yen has been one of the weakest currency in the last couple of months. But, looking at the JPY Futures chart, we can see it finishing a larger A-B-C corrective decline, while it's trading at the support, which can cause reversal and recovery for the Japanese Yen.
Even COT data of the japanese Yen shows extreme levels for Large speculators (green). It means that we may see some slow down of a current bear move, or even rally in the months ahead.
USDJPY Mid-Term Bearish Expectation/Analysis The explanation for this analysis is in the text on the chart
This expectation is a framework to look for a potential trading setup; I don't just execute based on these levels. I always wait for confirmations on lower timeframes
This Analysis was done using my complete Strategy, which includes the:
- Smart Money Concepts
- Multi Timeframe Liquidity and Market Structure
- Supply And Demand
- Auction Theory
- Volume Analysis
- Footprint
- Market Profile
- Volume Profile
- WYCKOFF
- ETC
PD: excuse my poor english
USDJPY Targets destroyed!I had to publish a new chart because the JPY Futures contract rolled over, resulting in a large gap in the continuous contract that I initially shared. Both take-profit targets were achieved perfectly! Linked to this post is the updated chart.
Japanese Yen Long Idea 6/8/23Commercial hedgers have reached max long levels on the COT oscillator. Large speculators and retail traders have recently capitulated on gold longs and dollar shorts, therefore, Yen may be an interesting place to see a short squeeze if the dollar rotation trade is to play out.
USDJPY bullish but meeting resistanceUSDJPY is continuing to be bullish, at least in the weekly chart, with MACD and VolDiv supporting in bullish alignment.
141.6 is the expected resistance, thereafter, 134 a good support.
SHort -The line I drew worked well for the bounce of the JPY which means that may pairs with with JPY in them go down when the index goes UP.
I put an area there for a potential retest and potential reversal or accumulation before another push up.
This could mean that the shorts with JPY might reverse of take a breather. I might get out based on this resistance.
JPY pairs shortI am partly using this chart of the JPY in order to trade the pairs like NZDJPY, USDJPY, etc.
Again, the JPY index could resume a drop very soon or could go and rests the pivot above.
If it does so, we will have some nice drops on many JPY pairs.
