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Market to Push BOJ?

Submitted by Bruce Krasting on 09/22/2010 17:53 -0400

It is getting interesting. We have a dollar “issue” in the making. I
think it may play out at some time in the near future. Markets are hard
to predict when they get near the edge. It is possible that an important
ramp up in the action could take place as early as Friday in NYC. One way it could play out:

The money flow is against the dollar. It seems to be moving from everywhere. As Zero Hedge
pointed out even the Brazilians are seeing money move to their
currency. We have two closings for the USDCHF below par. So we’re in
some dangerous territory there. This has happened before. It was short
lived and below the big figure did not hold. It feels different to me
this time.

The market is pushing the Euro and the Pound as well. So what could happen next?

To me it has to be a break in the USDYEN. The market HAS to resolve what is out there. The BOJ said “NO Mas”
when the dollar was about 83.50. We are about 1 big figure away as I
write. That is a lot of ground to cover. Unless there is a buyers
strike. If the Japanese market trades the yen to the low 84s tonight the
door gets open for a move below 83.99. With another 24 hours of
trading in the week. Below 84 is when something must break. Either we
see the BOJ or we don’t. I think there is a decent chance the Friday NYC
close could be at levels where there would be a question mark as to
what the hell the BOJ will do on Monday morning.

I think this will happen sooner or later. The timing seems ripe short
term as everything is leaning against the dollar right now. (thanks to
"whispers" of QE-2) The Yen has always been a “go to” currency
when the dollar is looking shaky. Except that the BOJ has put its foot
down. And pretty soon they will have to do so again. Only two options:

When/if the USDYEN gets to the mid 83.50’s the BOJ shows up and buys sufficient dollars to bring the rate to above 84.50.

Should that happen I would expect that the Yen crosses will react
strongly in favor of the CHF, EUR and Pound. When that happens it will
create demand that will be reflected in the dollar. The Euro currencies
are all going to rise. The dollar will have to get cheaper as a result.
Certainly this would make Ben Bernanke happy. I doubt the Swiss National
Bank will be too pleased with this result.

The other possibility is that the BOJ is a no show. We see them again at
82.90. The intervention results in the DLRYEN bouncing to only 83.50.
And it trades lower than that outside of the Japanese time zone.

Cha-ching on that result. This would mean that the BOJ has no intention of drawing a line in the sand. That they, “Only want to slow an inevitable adjustment”.
Should that be the case I would conclude that the DLRYEN is going to
80. It will happen in fits and starts for the next three months. It will
drag the dollar lower versus all the European currencies.

My problem is that either of these outcomes brings more instability. And
both of them point to a lower dollar. Precisely what D.C. would like to
see happen. Of course this would put the stiff-arm on all those holders
of our bonds. It’s hard to predict where that goes.

This could all be a head fake. The dollar could be oversold and find a bid. I would put that in the “Least Likely” column.

Note:
I think we are (once again) at one of those nexus points. Take that to
mean that all FX positions have high risk attached to them. Don’t take
my words as a trading recommendation. My recommendation on FX trading is
to not to trade FX for the time being unless you do it for a living. I
am not forecasting an FX rate. I am forecasting instability. The key
will be what the BOJ does when if they are pushed.

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Wed, 11/10/2010 - 05:26 | 715503 cheap uggs for sale

Thu, 09/23/2010 - 09:33 | 599582 Josephine29

Another interesting article Bruce so thanks. I thought all along that we were likely to see a test of the BoJs resolve but only time will tell I guess.

Thu, 09/23/2010 - 07:12 | 599406 Grand Supercycle

Short signals detected yesterday have now increased.

http://stockmarket618.wordpress.com

Thu, 09/23/2010 - 06:26 | 599384 Orly

It appears as though our POMO-inspired parabolic ramp to the 1155 trendline may have failed. We'll know tomorrow morning with US employment figures and existing home sales reports and how the market reacts to the news. After the dismal European Purchasing Manager's Index coming in fairly weak, I would expect all news to be bad news, a condition which may persist for several weeks should the SPX drop significantly over the next two trading sessions.

If the market is unable to resume the ramp by tomorrow afternoon, consider the deed done and a short-term reversal the next order of business. An SPX close below 1122 would confirm the move.

The near-term targets are SPX 1085 over the next week or so, followed by range-bound trading in the week to two weeks after that. The secondary target lower is about 1050, though I do not expect this level to be reached. Should 1050 be reached, the snap-back rally will take your head off. If you're short at those levels, be very careful and monitor your trades closely.

Falling risk appetite may take the USDJPY and the CHFJPY back to 83, then perhaps lower. Other targets would be:

EURUSD back to the origin of the succesful cup-with-handle formation at about 1.2960 for a re-test. (Later this may be the tell of the turn...)
AUDUSD to 0.92. It still has a giant gap to close.
GBPUSD to about 1.55
USDCAD to 106

Or I am completely off my rocker. Who can know?

Best of luck trading!

Olexsandra

Thu, 09/23/2010 - 07:13 | 599407 Steak

certainly not off your rocker, but maybe not giving enough weight to the other side. for all the technicals the dollar is looking mighty weak in this world. the past month we've seen big upside action in all risk-off currencies but the dollar. looks like that can continue too.

1136 was not a level that folks rushed in to buy, so there is no support there, even tho was big sto close above for a lil bit. 1122 as the bad close and ES just around there in the AM...if the bears can get something going today i'd be impressed, but to me it seems more like an inhale before the rally monkey again bangs the drum.

Thu, 09/23/2010 - 02:43 | 599285 ConfederateH

IMO, It all revolves around oil. As long as the sheiks are willing to accept dollars for oil the game can go on. And we have all these recent arms sales to the Saudi's (I believe $120B), and we have all the Iranian sabre rattling. I think the Japanese and the Swiss are just going to have to "suck it up".

Thu, 09/23/2010 - 02:07 | 599268 Ted K

Seems a bit of melodrama here if you aren't in FX. A lower dollar wouldn't hurt bonds sales that much, and it could be beneficial to our trade numbers.

Synopsis: This is a good post and I think an accurate post, but we can spare the dark clouds Bruce is trying to stuff in between the lines.

Thu, 09/23/2010 - 00:24 | 599204 Steak

back from portugal :)

the whole paring back of the socialist state is really gaining momentum in europe. even the swedes are taking the plunge

quoth the WSJ: We've been waiting to write this for about, oh, 70 years, but here goes: It's time the world started imitating the Scandinavian—or at least the Swedish—economic model. On Sunday, Swedish Prime Minister Fredrik Reinfeldt of the Moderate Party secured a second term in office, while the formerly dominant Social Democrats suffered their worst result in almost a century

it is budget season across europe and we will see short and long term fiscal obligations trimmed. if those moves are even marginally smiled upon then there are some cheap looking euro bonds out there. more reason for the dollar to drop?

Wed, 09/22/2010 - 23:06 | 599102 doolittlegeorge

i think following "personnel flows" is the tell. these events in Washington BEFORE the election no less are epochal. "quietus" has descended upon the top down media cramdowners so maybe the problem is we have a few media billionaires who prefer to go with them. whatever the case if Emmanuel leaves for an election he will never win (i think he's a real long shot for mayor of chicago right now myself) before November that puts the White House "A" team on the road to Perdition. with a war going on ts geithner is looking at more than just a gut check. more to the point the President himself is looking abandoned right now which is always a dangerous thing. and we havn't even had an "October surprise." that looks like a foregone conclusion now. at least the non-existent volume on the NYSE is getting explained a lot better. this could change very quickly should some type of major conflaguration erupt in Europe or a trade war erupt between China and Japan. my smuggling days were ended a lifetime ago but i sure recall "issues" between Korea and Taiwan being fairly common. i highly doubt its changed that much.

Wed, 09/22/2010 - 22:17 | 599041 FischerBlack

Take that to mean that all FX positions have high risk attached to them.

Problem is, all positions, no matter the asset class, are now FX positions. Currency flows are *dominating* absolutely everything it seems. But so far the vicious circle is still moving in slow motion. Fed does something, China does something, BOJ does something, then SNB, then Fed, BOJ, etc. When we start seeing rapid-fire punch-counterpunch we'll know it's close to game over (what that means I don't really have much of an idea, except it's probably good for AU). Like a toilet flush, the shit circles ever faster the closer it gets to disappearing forever.

Wed, 09/22/2010 - 23:11 | 599114 Orly

Now that's going to be the most fascinating time ever in the world to trade money.

'Coz you're asking: am I the circle or am I the shit? Hmmm. How do you not know?

But no matter...everything is one and the same eventually. Entropy, bitches!

Put that in your pipe and smoke it. Ha!

May you live in interesting times, my fellows!

Wed, 09/22/2010 - 20:44 | 598913 Orly

Bruce, thanks again for your work. "D

If I may pick a bone, however, in the ever-changing landscape of 4X vernacular. As far as I can tell, "big numbers" refers to what used to be called "pips." Okay, sorry but that is a severe regression in the green-speech, energy-saving language we have come to adore from Wall Street.

This time, it is backwards in that no one talks in mini/micro-pips anyway, so we should just assume that we are talking about "big numbers," unless specifically stated otherwise. May I suggest instead that when we're referring to mini/micro-pips, we call them "imps?" Leave pips alone, dammit!

I mean, a move of one thousand imps isn't so huge after all, then, is it? It's okay but I wouldn't wanna mortgage the house on those returns.

Turning to the currencies in question:

These are the hardest calls in a long, long time. Twenty-six months according to the Ozzie. But that's okay because the OzzieDollar looks to return to near the levels seen in late June of 2008...and we all remember how that went down! These times are akin to the oil rush of that time period, except this time, instead of oil and copper it is silver and gold.

I'm sorry but these things are in a bubble, just as the AUDUSD pair trades. All you gold-boggers please heed these words: follow the AUDUSD pair as a proxy for gold, silver, platinium, palladium...anything that says, "precious," in front of its name. The last time at these levels, the AUDUSD had a fairly precipitous drop.

Just sayin'.

The best idea for the 4X trader now is to recognise that these situations are at or near all-time extremes when trading the CHieF or the Japanese yen against the US Dollar. Looking back on historical charts tells us that extremes never rarely ever survive (and that idea is the basis of my trading style because "extremes" happen 24/5 in 4X...)

If that crazy 4X trader wanted to make a nearly-no-brainer trade, what he would do is set a limit to buy the currencies following massive Fibonacci breakouts; a set-it-and-forget-it trade that catches any decent rebound in the USDCHF and the USDJPY. Buy 3% of your account when the USDCHF rises to 104 and the USDJPY rises to 0.963...Good 'til Forever.

Then just wait. Got nothing to lose except a nice Thanksgiving surprise- when all you thought you had was another lame Detroit Lions game. 2012. What a year that was.

Bruce is right in that any predictions of where these wanderings will otherwise take us are simple musings of know-nothingness...but it is fun to guess!

As my acupuncture teacher, Dr. Thai used to say, "Shut your mouth, open your eyes and learn." Stay out of this 4X charade for now and watch the match. In ten years, you will be glad you did.

And as Woody would say, "If you don't have a (demo4X account), get one!"

Thanks for reading,

Olexsandra

Wed, 09/22/2010 - 21:10 | 598961 Bruce Krasting

The term "big figure" has many meanings. In the case of the USDCHF it is one, in my view.

Dollar Swiss at 1.04 and Dollar yen at 96? You could wait some time to see those numbers.

Wed, 09/22/2010 - 21:41 | 598999 Orly

Until 2012- or at least until we see a decent Detroit Lions football team.

I would like to thank you directly for all your interesting work. It helps me to "think outside the box," (I know but this time it is true...)

What I meant was that if you're looking for the magic number in either the yen or Swissie/Dollar crosses, you're barking up the wrong tree, no matter which tree you're on. Frankly, both pairs could trade in a range for as much as fourteen years (crazy, I know, but it works...), or both could break out at any time (probability about 15%...).

Either way, the trader is protected from any downside risk while waiting for the trade (and waiting and waiting...), or he is rewarded rather quickly. It is the only winning way to trade these pairs right now. There is just no way to know.

Stay out.

Wed, 09/22/2010 - 20:41 | 598904 taraxias

Bruce, Bernanke's big issue at the moment is gold. Yeah, DC would like a lower dollar but gold is making front page news everyday now which I'm sure doesn't please the fiat money cartel. That's his conundrum at the moment, especially when buyers have been surfacing at every dip whenever his surrogates launched a raid on PM's lately.

It's getting to the point where the dam has more holes than Bernanke has fingers I think.

Wed, 09/22/2010 - 19:59 | 598827 Glaucus

“Only want to slow an inevitable adjustment”

As car to ground off of cliff.

Good luck with that.

Wed, 09/22/2010 - 20:21 | 598823 99er

Chart: DX

Dollar futures appear to have completed a "V" Bottom and look set to begin a climb in a series of IH&S.

http://99ercharts.blogspot.com/2010/09/dx_5129.html

And tonight may well be the night that ES cracks. Good luck.

http://www.screencast.com/t/ZjhmMjUzYWMt

Wed, 09/22/2010 - 21:33 | 598989 Orly

Head and shoulders formations are rare and occur very gradually...inverse or otherwise. This is not one of them.

Wed, 09/22/2010 - 22:10 | 599036 99er

And "V" Bottoms"?

Chart: DX

http://99ercharts.blogspot.com/2010/09/dx_8039.html

Wed, 09/22/2010 - 23:02 | 599096 Orly

99, I thank you for the charts but they are quite difficult to decipher. I am not certain what is trading, what against what?..and they are hard on the eyes.

But you have fairly proved my point in that "v-bottoms," as you call them (I would ask if it is a engulfing candle or not?..it's not...) and head and shoulders formations do not belong together in the same sentence, much less the same chart.

Looking at your chart, though, there is a large gap that hasn't been filled to the upside. (I'm sorry, I can't read the number level...) In this way, you may get lucky in your call... but I think you called the wrong ball.

Wed, 09/22/2010 - 23:18 | 599115 99er

Thanks for the input; I appreciate your thoughts.

The "V" Top or Bottom Pattern: http://thepatternsite.com/vtopbot.html

"This is a good example of a V bottom chart pattern. Price drops at a 45 degree slope and then reverses, moving up at a slightly steeper slope. The V bottom also appears to be a head-and-shoulders bottom with the right bottom higher than the left -- call it an ugly head-and-shoulders bottom."

The chart is of DX on an hourly basis, not a currency pair. I'm not an FX trader but am interested in what is now happening since FX is dominating markets overall.

Thu, 09/23/2010 - 04:39 | 599345 Orly

I don't mean to nit-pick but I do so tire of people saying that this is a "kinda" head and shoulders pattern, call it ugly if you will...

No, a head and shoulders is a very specific pattern, not a "kinda" pattern. Sorry, I don't mean to gripe. Keep doing what you're doing. You're doing great!

Thu, 09/23/2010 - 06:34 | 599387 99er

Everybody needs feedback (that's why I share) and I appreciate yours. A follow-up chart:

http://99ercharts.blogspot.com/2010/09/dx_23.html

Wed, 09/22/2010 - 19:55 | 598818 Freebird

Yup a dxy retest of 75 is on the cards. At these levels where should we see gold & silver....

Wed, 09/22/2010 - 19:48 | 598800 Mr Lennon Hendrix

There is some loot to be made after QE Light and ahead of QE Dos! Trade them Fiat round and round, where they stop, not 'till the ground! How to trade this? Go long silver!

$$ has broken to the maximum low of the recent range, and it may have broken down entirely. Normally I would expect Japan to step in here, but this is beyond normal.

Wed, 09/22/2010 - 19:30 | 598779 mynhair

Been at a tipping point for over a year. No need to fear. Me, I'm betting on a return to parity on CHF.

Wed, 09/22/2010 - 19:35 | 598783 Freebird

You're expecting CHF to weaken?

Wed, 09/22/2010 - 19:27 | 598773 tom

The dollar/euro vs yen/franc/gold/silver: it's like a teeter totter on a shaft drilling downward. As the dollar and euro push each other up and down, as a pair they decline vs yen/franc/gold/silver.

In the last weak dollar / strong euro phase, it reached a point where markets started to panic about Europe's prospects, and a weak euro / strong dollar phase ensued.

But this time the Fed is threatening to keep the dollar down with deficit monetization. The equivalent of lead shoes. So the euro's going up despite the PIGS doing their best to drag it down. Once QE starts, I don't see how the ECB can prevent appreciation of the euro vs the dollar without some kind of similarly drastic action.

Wed, 09/22/2010 - 19:10 | 598750 Freebird

Well some deeply entrenched Swiss are targeting today CHF 95 against the USD in 3 months & also gains by most Euro currencies against the $. Yen not so clear. Usual great article & tx BK. Where's Orly?

Wed, 09/22/2010 - 19:51 | 598808 Orly

Present!

Wed, 09/22/2010 - 20:02 | 598822 Freebird

Aah!! Good evening to the ZH resident fx trading guru..what you thinking?

Edited. BK I see you more as the ZH resident fx macro guru...

Wed, 09/22/2010 - 21:27 | 598983 Orly

Everything trades the same. You can follow certain principles and trade anything on any time-frame and in any arena. It just so happens that I look at longer-term ideas so that I don't have to think so much. Maybe I am lazy?

Thu, 09/23/2010 - 00:17 | 599195 Freebird

Probably not...& I am not going to attempt highlighting trading strategies but my most successful positions are sometimes those pairs that I follow for weeks or months before pulling the trigger. So lazy no, sounds smart.

Wed, 09/22/2010 - 19:05 | 598735 Gold Man Sucks

Any views about the cad?

I would apreciate an informed opinion.

Wed, 09/22/2010 - 20:44 | 598918 RockyRacoon

They print very colorful bank notes.

Thu, 09/23/2010 - 00:18 | 599200 Freebird

Lol. Many happy returns furry one.

Thu, 09/23/2010 - 00:32 | 599212 RockyRacoon

Thank you. I may be a bit too irascible today -- but it IS my birthday after all.

Wed, 09/22/2010 - 18:46 | 598700 New Revolution

And this is what our markets have been waiting for,... the trigger. Ben and Timmy can paint and paper any picture they can control,.... but the world is too big for the brand of bullshit they, with the blessing of our President, Barry Soetoro and his Congress, have been laying on America. An inherited system is no excuse when you pick it up and carry it forward as your very own. If you didn't know what to do then you sure as hell don't know what to do now. QE2 November 3rd. Too late with the wrong answer.

Wed, 09/22/2010 - 18:38 | 598681 Don Smith

If DC continues to champion a weaker dollar, won't they run the risk of NOT having foreign entities show up at our 2-year .67% auctions, because the risk of the dollar being 10% lower 2 years from now (or worse!) far outweighs the .67%?

And, that would lead to bond crisis across the board, no?

Wed, 09/22/2010 - 18:42 | 598678 RoRoTrader

USD/JPY to 80.......you are not alone BK as so says Eisuke Sakakibara.

Price is drip drip drip and no follow through since the spike to 85.75.

My vote; “Only want to slow an inevitable adjustment”

Thu, 09/23/2010 - 06:10 | 599380 RoRoTrader

Price currently 84.45.......9/23.......5AM ET

Rounding top 4H chart bearish reversal.........look for a break of TL support around 84.25 serious threat to retest 83.85 area.

Wed, 09/22/2010 - 18:23 | 598648 damage

Guys, I'm scared. D:

Market to Push BOJ?

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