QuantumLogicTrading

USDJPY: BOJ - FINAL THOUGHTS; FUNDAMENTAL/ TECHNICAL ANALYSIS

FX:USDJPY   U.S. Dollar/Japanese Yen
At 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.
tradeimx
4 months ago
could you please tell me how you get the figure 60%-80% aggressive?
And 15%-20% buyers taking profit?
thankjs
Reply
QuantumLogicTrading tradeimx
4 months ago
Well if you look on the way up - we managed 80% in 4 days (aggressive), so you would expect the same on the way down if there is a fundamental shift in perspective.

Also, the 104 level was key on the way up (the breakout led to 107) so the fact that that has held indicates to me that the sell-off isnt a change in view and is more of a technical buyer TP situation - which makes sense as expectations regarding easing by the BOJ have dropped so buyers likely did take profit causing a cascade of selling.

This is just my view ofc, I dont see order flow but its my guess as it happened around the pivot level at 107 (which TP usually happens).
Reply
tradeimx QuantumLogicTrading
4 months ago
I see.
How long have you been trading what pairs do you trade usually? Do you have anypair that you always trade?
Also about the usdjpy question, is it not usually too late to work out from daily chart?
Reply
QuantumLogicTrading tradeimx
4 months ago
Ive been trading for 5yrs with some insto xp in fx sales as well. I tend to trade whats in fashion fundamentally - i dont have strict pairs e.g. GBP and JPY are my main focus at the moment - either eur$ nzd$ and aud$ also viewed but not as aggressively.
Reply
QuantumLogicTrading tradeimx
4 months ago
too late to work out what? BOJ decisions move 500pips+ so using a smaller timeframe isnt really relevant - i trade/ track macro moves e.g. over several days, rather than the intra day chop.
Reply
tradeimx QuantumLogicTrading
4 months ago
I don't know..
I'm still learning :)
thanks for the view:)
Reply
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