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Japanese Yen Futures (Sep 2020)Japanese Yen Futures (Sep 2020)Japanese Yen Futures (Sep 2020)

Japanese Yen Futures (Sep 2020)

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6JU2020 trade ideas

Land of Rising Sun and Falling YenCME: Micro USD/JPN Futures ( CME_MINI:M6J1! ) On September 21st, the Fed raised interest rate for the fifth time. The very next day, Bank of Japan decided to keep the country’s short-term interest rate at -0.10%. On November 3rd, the Fed raised another 75 bps, and the Fed Funds rate is now 3.75-4.00%. Interest rate spread between the two countries now reaches 4%. With Japan determining to stay accommodative, the rate spread could be over 500 basis points by early 2023. This is show time for carry trade, a popular and time-honored forex strategy. What is Carry Trade? A currency carry trade is a strategy that involves borrowing from a low yielding currency to fund the purchase of a currency that provides higher interest income. This strategy attempts to capture the rate spread, which can be substantial with the use of leverage. Carry trade is one of the most popular trading strategies in the forex market. In essence, it is as simple as "buy low, sell high”. Popular carry trades involve buying currency pairs such as AUD/JPY and NZD/JPY, since they have decent rate spreads over time. Profit of carry trade largely comes from its ability to earn interest. Income is accrued every day for holding long carry positions. Below is a typical daily interest accrual formula: Daily Interest = (IR(long) – IR(short)) * NV / 365 where: IR = interest rate NV= notional value Another source of profit results from the exchange rate changes from the time a trade is initiated to the time it is closed, which could be illustrated by the following example. DIY Guide for A Synthetic Carry Trade Assumptions: 1. You have built up $100,000 in home equity from your $500,000 house 2. Foreign currencies can be bought and sold with your bank, without restrictions 3. Home equity loan costs 7.2% annually 4. Borrowing rate for Japanese Yen is 2.2% Home equity loan rate rose sharply due to the Fed rate hikes. However, since your bank acquires cheap Yen from Japan, they could charge 2.2% and still make money. When you pledge your home as collateral, your yen loan is low risk from the bank’s perspective. Trade Initiation: • At USD/JPY rate of 115 (using rate at the end of last year), you borrow 11,500,000 yen from the bank for 1 year, and immediately exchange it into USD 100,000. • You buy a 1-year Jumbo CD (certificate of deposit) from the bank, which yields 4.2% with a minimum purchase of $100,000. Trade Closing: • One year later, unwind the trade. • Turn your CD in and get $104,200 from the bank. • You exchange Dollar back to Yen at 150 (recent rate) and get 15,630,000. After paying back 11,500,000 in principal and 253,000 in interest, you net 3,877,000 yen. • One-year return is 33.7%. Just 2% comes from rate spread (4.2%-2.2%). The rest derives from yen depreciation, which allows you to pay back the loan with fewer dollars. In this example, we do not use leverage as home equity is in place to fully guarantee the loan. By borrowing with yen, we effectively lower the home equity loan rate from 7.2% to 2.2%. Instead of putting it in CD, you could find more productive use of this low-cost capital, such as paying down a 20% credit card debt. Usually, interest rate spread is the main income source for carry trades with exchange rate gain as a bonus. With yen dropping to 32-year low, the latter becomes very prominent this year. Borrowing yen from the bank is equivalent to shorting the yen futures. Hedging the Carry Trade Most traders work with a forex broker to take on carry trades. Their trades are usually unhedged. Large leverage is used to amplify the returns from small interest rate spreads. In today’s volatile markets, naked carry trades could be very risky. Trades using 50- and 100-time leverage could easily blow up if exchange rate moves against you. In my opinion, sizable USD/JPY interest rate spread could stay for a considerable period of time, at least throughout 2023. However, Yen may have already bottomed at 150. Bank of Japan has intervened the market by emergency bond buying. It is a good time to do USD/JPY carry trades. However, it would be wise to protect your positions in the event of a yen rally. Yen lost some 25% against the dollar so far this year. If it rebounds just 5%, it could wipe out all the returns from interest rate spread. CME Micro USD/JPY futures contract ( CME_MINI:M6J1! ) has a notional value of $10,000. At settlement price of 144.71 last Friday, each December contract is worth 1,447,100 yen. Initial margin is 45,000 yen per lot, or approximately $311. If you expect yen to appreciate, consider shorting the futures. As it is quoted yen per dollar, rising yen will result in each dollar exchanging for fewer of it. Happy trading. *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
Editors' picks
MShort
by JimHuangChicago
9
YEN: The Knight in Shining Armor ArrivesThe Japanese Yen is in uncharted territory with the Dollar absolutely POUNDING the Yen into submission. Today was the first time since June 1998 that the Bank of Japan announced it would purchase Yen in an attempt to slow down the depreciation of the Yen. Nobody gives a damn about Forex, so why is this important? Well 1) Yen makes up the second largest weighting in DXY 2) June 1998 marked a temporary top in DXY . Will history repeat itself? I'm not convinced. Yet. 1) Yen is going to have to confirm its monthly hammer 2) Yen is going to need to see some bullish continuation back above the .618 fib and hold it as support. There's a high volume node right at the .618 fib, so it'll be tough resistance to overcome. If these conditions are met, that should send the Yen spiraling upwards like it did in 1998, and mark a temporary top in the DXY allowing some breathing room for stocks, cryptos, and metals. Will the Yen save millions of portfolios? Hmm...
CME:6J1!
by CrashWhen
JAPANESE YEN Futures (6J1!), H4 Potential for Bullish RiseType : Bullish Rise Resistance : 0.0071705 Pivot: 0.0070675 Support : 0.0069015 Preferred Case: On the H4, with price moving along the ascending trendline and RSI is showing an ascending trendline, we have a bullish bias that price may rise from the pivot at 0.0070675 where the 23.6% fibonacci retracement is to the 1st resistance at 0.0071705 where the 38.2% fibonacci retracement is. Alternative scenario: Alternatively, price could drop to the 1st support at 0.0069015 where the swing low support is. Fundamentals: The DXY is droppind, combined with the positive BSI manufacturing index and PPI Y/Y, we would hold a bullish bias.
CME:6J1!Long
by Genesiv
JAPANESE YEN FUTURES (6J1!), H4 Potential for Bearish Drop Type : Bearish Drop Resistance : 0.0072125 Pivot: 0.0070865 Support : 0.0070165 Preferred Case: On the H4, with price moving below the ichimoku indicator, and within the descending trendline, we have a bearish bias that price will drop from pivot at 0.0070865 where the current price and 78.6% fibonacci projection are to the 1st support at 0.0070165 where the 100% fibonacci projection is. Alternative scenario: Alternatively, price could rise to 1st resistance at 0.0072125 where the previous swing lows and 23.6% fibonacci retracement are. Fundamentals: Japan's Average Cash Earnings y/y and Household Spending y/y are out today, both of them are lower than the forecast.
CME:6J1!Short
by Genesiv
6J1! - Time To Get Very Long Yen6j1! having a nice little bounce here at support to pop back above the 20 year low also a 1:0.618 long term fib extension just below. This has already had the fear test plunge followed by rocketing automatic rally and now has pulled back to the 20 year low again. May meander, may pump - who knows really but this is the big one mark my non financial advice words. My pick for a FX pair is USDJPY because I think DXY has also hit a major top. Idea linked below. Not advice.
CME:6J1!Long
by dRends35
4
Japanese Yen Futures (6J1!), H4 Potential for Bearish DropType : Bullish Rise Resistance : 0.0074025 Pivot: 0.0073045 Support : 0.0072360 Preferred Case: with the price moving within the descending trendline and crossing below the MA, we have a bearish bias that the price may drop to the pivot at 0.0073045, where the previous swing low is. If the pivot is broken, we can expect the price drop to the 1st support at 0.0072360, where the swing low is. Alternative scenario: Alternatively, the price may break the descending tren and rise to the 1st resistance at 0.0074025, where the overlap resistance and 61.8% fibonacci retracement are. Fundamentals: The Tokyo Core CPI y/y is out today, which is at 2.6%, higher than the expectation, which is good for JPY, therefore, from fundamental view, please take note there's also a possibility that the JPY future may increase.
CME:6J1!
by Tickmill
Japanese Yen Futures (6J1!), H4 Potential for Bearish DropType : Bullish Rise Resistance : 0.0074025 Pivot: 0.0073045 Support : 0.0072360 Preferred Case: with the price moving within the descending trendline and crossing below the MA, we have a bearish bias that the price may drop to the pivot at 0.0073045, where the previous swing low is. If the pivot is broken, we can expect the price drop to the 1st support at 0.0072360, where the swing low is. Alternative scenario: Alternatively, the price may break the descending tren and rise to the 1st resistance at 0.0074025, where the overlap resistance and 61.8% fibonacci retracement are. Fundamentals: The Tokyo Core CPI y/y is out today, which is at 2.6%, higher than the expectation, which is good for JPY, therefore, from fundamental view, please take note there's also a possibility that the JPY future may increase.
CME:6J1!Short
by Genesiv
1
Micro USD/JPY FUTURES (M6J!), H4 Potential for Bullish RiseType : Bullish Rise Resistance : 138.35 Pivot: 137.05 Support : 135.30 Preferred Case: On the H4, with the price moving within the ascending channel and above ichimpku cloud, we have a bullish bias that the price may rise from the pivot at 136.89, which is in line with the overlap resistance to the 1st resistance at 138.29, where the swing high is. Alternative scenario: Alternatively, price could drop to the 1st support at 135.31, where the 23.6% fibonacci retracement and swing low support are. Fundamentals: The small but meaningful rise in the US 2-year yield contributed to the rise of USD.
M
by Tickmill
Micro USD/JPY FUTURES (M6J!), H4 Potential for Bullish RiseType : Bullish Rise Resistance : 138.35 Pivot: 137.05 Support : 135.30 Preferred Case: On the H4, with the price moving within the ascending channel and above ichimpku cloud, we have a bullish bias that the price may rise from the pivot at 136.89, which is in line with the overlap resistance to the 1st resistance at 138.29, where the swing high is. Alternative scenario: Alternatively, price could drop to the 1st support at 135.31, where the 23.6% fibonacci retracement and swing low support are. Fundamentals: The small but meaningful rise in the US 2-year yield contributed to the rise of USD.
MLong
by Genesiv
JAPANESE YEN Futures (6J1!), H4 Potential for Bearish DropType : Bearish Drop Resistance : 0.0075890 Pivot: 0.0074140 Support : 0.0073120 Preferred Case: On the H4, with the price moving below the ichimoku cloud and breaking the ascending trendline, we have a bearish bias that the price may drop from the pivot at 0.0074140, which is in line with the pullback support, 61.8% fibonacci retracement and 61.8% fibonacci projection top the 1st support at 0.0073120, where the 100% fibonacci projection, 78.6% fibonacci retracement and overlap support are. Alternative scenario: Alternatively, price could rise to the 1st resistance at 0.0075890, where the swing high is. Fundamentals: The trade balance of Japan is out today, which is -2.13T, lower than forecast and previous.
CME:6J1!Short
by Genesiv
MICRO USD/JPY Futures (E71!), H4 Potential for Bullish MomentumType : Bullish Rise Resistance : 138.65 Pivot: 135.31 Support : 130.00 Preferred Case: On the H4, with prices moving above the ichimoku indicator, the MACD histogram is above zero and the RSI moving along the ascending trendline, we have a bullish bias that price may rise from the pivot at 135.31 where the 61.8% fibonacci retracement is to the 1st resistance at 138.65, where the swing high is. Alternative scenario: Alternatively, price could break pivot structure and drop to the 1st support at 130.00 where the swing low support is. Fundamentals: The latest monetary policy statement from the Bank of Japan indicates that the BoJ will continue holding short-term policy interest rates at -0.10% and purchase 10yr JGBs with no upper limit. The BoJ’s commitment to an ultra-loose monetary policy continues to diverge from the other central banks’ path of monetary policy tightening, leading to expectations for the Yen to continue weakening against the other major currencies.
M
by Genesiv
Japanese Yen E-mini Futures (J71!),Type : Bullish Rise Resistance : 0.007784 Pivot: 0.007629 Support : 0.007490 Preferred Case: On the H4, with prices moving above the ichimoku indicator and broken out of the descending channel , we have a bullish bias that price will rise to the pivot at 0.007629 where the overlap resistance and 61.8% fibonacci retracement are. Once there is upside confirmation of price breaking pivot structure, we would expect bullish momentum to carry price to 1st resistance at 0.007784 where the pullback resistance, 127.2% fibonacci extension and 78.6% fibonacci retracement are. Alternative scenario: Alternatively, price could drop to the 1st support at 0.007490 where the pullback support is. Fundamentals: Since it was stated that the central bank won’t hesitate to add stimulus if the economy needs it, we have a bullish view on the Japanese Yen.
CME_MINI:J71!
by Tickmill
Japanese Yen E-mini Futures (J71!), Type : Bullish Rise Resistance : 0.007784 Pivot: 0.007629 Support : 0.007490 Preferred Case: On the H4, with prices moving above the ichimoku indicator and broken out of the descending channel, we have a bullish bias that price will rise to the pivot at 0.007629 where the overlap resistance and 61.8% fibonacci retracement are. Once there is upside confirmation of price breaking pivot structure, we would expect bullish momentum to carry price to 1st resistance at 0.007784 where the pullback resistance, 127.2% fibonacci extension and 78.6% fibonacci retracement are. Alternative scenario: Alternatively, price could drop to the 1st support at 0.007490 where the pullback support is. Fundamentals: Since it was stated that the central bank won’t hesitate to add stimulus if the economy needs it, we have a bullish view on the Japanese Yen.
CME_MINI:J71!Long
by Genesiv
JAPANESE YEN FUTURES (6J1!), H4 Potential for Bullish RiseType : Bullish Rise Resistance : 0.0079195 Pivot: 0.0076525 1st Support : 0.0074905 2nd Support: 0.0074080 Preferred Case: On the H4, with prices moving above the ichimoku indicator, we have a bullish bias that price will rise to the pivot at 0.0076525 where the swing high resistance and 61.8% fibonacci retracement are. Once there is upside confirmation of price breaking pivot structure, we would expect bullish momentum to carry price to 1st resistance at 0.0079195 where the swing high resistance and 161.8% fibonacci extension are. Alternative scenario: Alternatively, price could drop to the 1st support at 0.0074905 where the pullback support is. Once there is downside confirmation that price has broken 1st support structure, we would expect bearish momentum to carry price to 2nd support at 0.0074080 in line with pullback support. Fundamentals: Since it was stated that the central bank won’t hesitate to add stimulus if the economy needs it, we have a weak bullish view on the Japanese Yen.
CME:6J1!Long
by Genesiv
Potential Bullish ContinuationTitle: JAPANESE YEN FUTURES ( 6J1! ), H4 Potential for Bearish Momentum Type : Bullish Momentum Resistance : 0.007487 Pivot:0.007400 Support : 0.007309 Preferred Case: On the H4, with price moving above the ichimoku cloud and in an ascending trend channel and RSI showing an ascending trendline, we have a bullish bias that price will continue to rise from the pivot at 0.007400 in line with the pullback resistance to the 1st resistance at 0.007487 in line with the 61.8% fibonacci projection . Alternative scenario: Alternatively, price may reverse off the pivot and drop to the 1st support at 0.007309 at the overlap support in line with the 50% fibonacci retracement . Fundamentals: Japanese Finance Minister Suzuki said that the Japanese government is concerned about the Yen’s recent rapid weakening, giving us a bearish bias on the Japanese Yen.
CME_MINI:J71!
by Tickmill
1
Potential Bullish ContinuationTitle: JAPANESE YEN FUTURES (6J1!), H4 Potential for Bearish Momentum Type : Bullish Momentum Resistance : 0.007487 Pivot:0.007400 Support : 0.007309 Preferred Case: On the H4, with price moving above the ichimoku cloud and in an ascending trend channel and RSI showing an ascending trendline, we have a bullish bias that price will continue to rise from the pivot at 0.007400 in line with the pullback resistance to the 1st resistance at 0.007487 in line with the 61.8% fibonacci projection . Alternative scenario: Alternatively, price may reverse off the pivot and drop to the 1st support at 0.007309 at the overlap support in line with the 50% fibonacci retracement . Fundamentals: Japanese Finance Minister Suzuki said that the Japanese government is concerned about the Yen’s recent rapid weakening, giving us a bearish bias on the Japanese Yen.
CME_MINI:J71!Long
by Genesiv
Micro USD/JPY Futures (M6J1!), H4 Potential for Bearish DropType : Bearish Momentum Resistance : 136.42 Pivot: 135.00 Support : 133.53 Preferred Case: On the H4, since price has broken out of an ascending trendline and is moving below the ichimoku indicator, we have a bearish bias that price will drop from the pivot at 135.00 where the pullback resistance is to 1st support at 133.53 in line with swing low support, 61.8% fibonacci retracement and 100% fibonacci projection . Alternative scenario: Alternatively, price may break pivot structure and rise to the 1st resistance at 136.42 where the pullback resistance is. Fundamentals: The weakening of the DXY should provide relief for the Japanese businesses that are hurt from the weakening of the Yen. This gives me a bullish bias for USDJPY.
MLong
by Genesiv
Micro USD/JPY Futures (M6J1!), H4 Potential for Bearish DropType : Bearish Momentum Resistance : 137.22 Pivot: 136.44 Support : 134.06 Preferred Case: On the H4, with price moving below the ichimoku indicator and has broken the ascending trendline, we have a bearish bias that price will rise and drop from the pivot at 136.44 where the pullback resistance, 78.6% fibonacci projection and 38.2% fibonacci retracement are to 1st support at 134.06 in line with swing low support, 161.8% fibonacci extension and 61.8% fibonacci retracement . Alternative scenario: Alternatively, price may break pivot structure and rise to the 1st resistance at 137.22 where the pullback resistance and 61.8% fibonacci retracement are. Fundamentals: Due to the high volatility in USDJPY , we have a bearish bias on the USDJPY forex pair.
M
by Tickmill