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 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*
RTRS REPORT: CITES SOURCES, THAT JAPANESE GOVERNMENT PREPARING JPY 20TRLN STIMULUS AND JPY 9TRLN GOVT/FISCAL SPENDING PACKAGE; COULD EXPAND BEFORE AUG 2 CABINET APPROVAL
IMO this opens up a buying opportunity for UJ once it finds some support because it should make its way back to 107 and through again since the information is old/ market over reaction.
Kurodas Comments BBC4 - Old reiterations says BOJ Official:
1. BOJ SPOKESMAN: KURODA'S COMMENT WAS A REITERATION OF USUAL STANCE - RTRS
- BOJ'S KURODA: IF NECESSARY, CAN ADD STIMULUS IN 3 DIMENSIONS - BBC RADIO 4
- BOJ'S KURODA: NO NEED, POSSIBILITY FOR HELICOPTER MONEY - BBC RADIO 4
- Gold and yen losing their gains massively - whilst bonds already in the red, risk assets increasing into green so the risk on sentiment is rebalancing/ flushing out the misinformation from earlier.
UJ should be back at 107 within 3 hours (if not by ldn close).
Market flushing out the bad info - Draghi should be dovish which helps risk/ UJ push higher also.
- I expect Draghi to talk about possibility of extending the maturity of the APP programme past march 2017 as hinted already -
at 80bn a month, a 3m extension is 240bn and 6m is 480bn so any hints of this materialising is massively supportive of risk.
- The reason i think Draghi will discuss the extension is due to the message from the ECB this morning "the Governing Council confirms that the monthly asset purchases of â¬80 billion are intended to run until the end of March 2017, or beyond, if necessary, and if the subdued path of inflation insists".
1. ECB Draghi's dovish sentiment will nodoubt at USDJPY's recovery and get us back on track with the 107-109-11 risk on momentum.
2. However, thinking forward opens the question, "How much are markets banking on a strong delivery from the BOJ next week?", given that today UJ sold off 150pips on just an old statement. Surely if the BOJ fails to deliver an aggressive easing pressure we will see more than a 150pip fall, and more like a complete risk-off reversal e.g. i can see USDJPY trading straight to 104 if BOJ delivers less than expected.
- Such ideas/ sentiment perhaps means we should adjust our profit taking model e.g. take the smaller 100pip profits to maximise profits in an environment that trades purely at the mercy of CB comments - though that is something each individual trader will have to weight up, but nonetheless is something ALL traders should start considering now as we go into the 28th.
- Todays shock sell-off should be treated as a real eye opener/ potential dummy run of what may happen next week, so adjust your trading accordingly if you agree/ think such shocks/ rhetoric is more likely.
- some explanation for todays events - just a thought but worth looking at.
1. NIKKEI REPORT THAT JAPAN STIMULUS PACKAGE COULD BE AS LARGE AT JPY 30TRLN (HAD PREVIOUSLY HEARD JPY 20TRLN)
1. Given Asia session starting now i expect USDJPY to shrug the NY/ LDN losses off as 1) the asia market is smarter than LDN and knows the kuroda comments were old and; 2) as the above post - an extra 50% of extra stimulus is being speculated at JPY30trn which should also give UJ a boost.
2. Plus in a post above i talk about Friday being the "green/ up" day for the last 2wks of correlation so this could hold and help UJ higher.