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USDJPY: Strong View

Tyler Durden's picture




 

Submitted by Nic Lenoir of ICAP

As you by now well know I am fundamentally bullish USDJPY for the long term. Leaving aside the fundamental economic problems of the Japanese economy, the BOJ has recently pretty much committed to pursue QE until they can somehow manufacture inflation, the debt to GDP ratio is 200% and rates are at 0% so comparatively the USD has nothing to be ashamed of, and the Fed is starting to pull out liquidity from the market. Therefore if risk doesn't collapse (as it would trigger the usual flight to quality in JPY / carry trade covering) the elements in terms of monetary policy and rates cycle are also in place to support economic fundamentals.

Technically, we see the market shows bullish divergence as the RSI has bounced on the long term support and is not validating the recent lows in price. On the daily chart we see we have challenged several times 2 key resistance trendlines and we appear ready for a break-out. We then zoom in on the hourly and see that we are back on the 89 support, and there is strong divergence in momentum indicators. A break at 89.50 would trigger an inverted H&S which is the short-term signal we need to confirm the next leg up is upon us. Alignment of big picture fundamentals and technicals give us a strong view on the strade, but we will wait for the validation at 89.50 as risk aversion and flight to quality have so far been the killer for this otherwise very sound macro trade, and we need momentum on our side.

Good luck trading,

Nic

 

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Tue, 03/02/2010 - 14:10 | 251212 Mr Lennon Hendrix
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The Yen will be the next shoe to drop in the currency wars, after the Brit 'ish Pound (pound as in weight, as in Lira, as in Larr) Sterling gets the wrong end of the stick (ok Euro, now go sit in the corner).  The Yen will run to maybe 95, but not much higher, as the Doelarr's QE Dos will begin shortly.  The only currencies that will show real strength this year will be NZD, AUD, and CAD.  Their collective strength will peter out in 2011, as they face the same problems as every other currency (huge debt, poor markets ie housing).  Either way, btw, gold to crush all markets here on out.

Tue, 03/02/2010 - 14:38 | 251252 Oracle of Kypseli
Oracle of Kypseli's picture

Advise to BOJ: You want inflation right?

Get together with the Japanese heavy industries and bid contracts overseas on the cheap now. Once the Yen weakens, start repatriating money.

Rince and repeat.

Tue, 03/02/2010 - 14:41 | 251255 Oracle of Kypseli
Oracle of Kypseli's picture

2nd advise to BOJ

Formula 2:

Bid overseas contracts with deferred payments.

Same drill. 

 

Tue, 03/02/2010 - 14:42 | 251256 Oracle of Kypseli
Oracle of Kypseli's picture

doublicate

Tue, 03/02/2010 - 14:57 | 251283 schatzingrid
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Go and read : http://www.mckinsey.com/mgi/reports/freepass_pdfs/debt_and_deleveraging/debt_and_deleveraging_full_report.pdf

Then you will understand that Greece is a starter and the main course is...

Tue, 03/02/2010 - 15:40 | 251355 Mr Lennon Hendrix
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A yummy reference to food!  soylient green?  haha

Tue, 03/02/2010 - 15:45 | 251356 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

dupe.

Tue, 03/02/2010 - 16:17 | 251420 SteveNYC
SteveNYC's picture

Does anybody have a clue as to why the piece-o-shit small caps are almost making new highs? Many of these (garbage) companies don't even have earnings, pay no dividends, and are not growing. What the fuck gives?

Tue, 03/02/2010 - 17:36 | 251542 Anonymous
Anonymous's picture

Sector rotation my friend. A couple of big movers in equities parked some money in small caps (probably because no one else was) then the herd detected and followed.

Most of the herd has no idea or awareness of the intermarket/macro forces playing out.

I would not be surprised if telecoms suddenly became a favorite to park money for a day or two.

This market is more bi-polar than my x-girlfriend.

Tue, 03/02/2010 - 17:49 | 251560 deadhead
deadhead's picture

bubblemania...rut hit a high at 650 ish today.  just a symptom of the hot money syndrome.....ben bubbles bernanke at work.  market ready to take is my read.

Tue, 03/02/2010 - 19:11 | 251674 SteveNYC
SteveNYC's picture

Deadhead, anon, thank you both for your insight. I get the feeling this bitch (RUT) is going to go down faster than a Harlem Hooker once the rout starts. Might take my first position of the year, some TWM.

 

 

Tue, 03/02/2010 - 22:13 | 251800 Anonymous
Anonymous's picture

You know what the fuck gives; these were the things hit the hardest so if the perception is that we are early in a cycle everyone wants to own the trashiest high beta stuff that offers the most upside tomorrow, even though it isn't at all something you'd want to own long-term.

However, there are some small caps (and especially micro caps) that offer really compelling value here.

Best to stay anon when pimping illiquid small cap stocks one already has a fat long position in, but take a look at CLCT, TIII, and DORM. You might find them compelling. (Yes, I'm talking my own book, but at least it's an interesting book.)

Tue, 03/02/2010 - 17:24 | 251526 Anonymous
Anonymous's picture

One question for Mr. Nic:

Japan has been trying unsuccessfully to manufacture inflation for 20 years. If they haven't been able to do it yet, what makes you think they can do it now? The reason I ask is because you make it sound like it's a foregone conclusion that it's going to happen, probably because you have already put on the trade. On the other hand, maybe it's like it is with my dog. If he chases enough bitches he eventually catches one, never mind so infrequently that when he does he knows not what to do with her. He usually just ends up sniffing and when she growls at him he backs down. Think of that as the equivalent of a stop loss.

All I know is that I love it when you guys talk like you're technical traders and blather on about RSI divergence but then tie it back to some fundamental thing like inflation and some manipulation thing like QE. I'm a trader Nicster, and I don't give a shit about inflation or QE if I'm trading on a technical basis, so again I gotta ask you:

1. Is it because you've already put on the trade and you're trying to convince yourself that it's a good trade?

or

2. Is it based on the dog chases bitch theory with the dog being the BOJ and the bitch being inflation and if so, what in the fuck does that have to do with RSI divergence?

I'm 100% serious. You're my senior Behavioral Finance project. I can hear the gears grinding, but I think they might need oiling.

Thank you.

Wed, 03/03/2010 - 03:34 | 252028 Anonymous
Anonymous's picture

I think its based on the "please look the other way" theory. In other words, the deflationary maelstrom preparing to suck down everything between Hokkaido and Okinawa is now an unstoppable force and the BOJ is painfully aware of it.

So rather than utter pathetically useless comments about "deflation fighting", they're asking us all to face the other direction and focus on fantasy-land, where inflation targets are achievable goals.

Tue, 03/02/2010 - 17:24 | 251527 Anonymous
Anonymous's picture

One question for Mr. Nic:

Japan has been trying unsuccessfully to manufacture inflation for 20 years. If they haven't been able to do it yet, what makes you think they can do it now? The reason I ask is because you make it sound like it's a foregone conclusion that it's going to happen, probably because you have already put on the trade. On the other hand, maybe it's like it is with my dog. If he chases enough bitches he eventually catches one, never mind so infrequently that when he does he knows not what to do with her. He usually just ends up sniffing and when she growls at him he backs down. Think of that as the equivalent of a stop loss.

All I know is that I love it when you guys talk like you're technical traders and blather on about RSI divergence but then tie it back to some fundamental thing like inflation and some manipulation thing like QE. I'm a trader Nicster, and I don't give a shit about inflation or QE if I'm trading on a technical basis, so again I gotta ask you:

1. Is it because you've already put on the trade and you're trying to convince yourself that it's a good trade?

or

2. Is it based on the dog chases bitch theory with the dog being the BOJ and the bitch being inflation and if so, what in the fuck does that have to do with RSI divergence?

I'm 100% serious. You're my senior Behavioral Finance project. I can hear the gears grinding, but I think they might need oiling.

Thank you.

Tue, 03/02/2010 - 18:38 | 251630 Anonymous
Anonymous's picture

Perhaps when you are enabled to post noteworthy postings like Nic and all the TD's your remarks will be more worthy than those above you have posted. Lose the F*** word and accept that technical analysis is not infallable. Some, if not all of the best traders use a combination of both technical and fundamental analysis. Its foolish to ignore either one, just as you are.

-1

Tue, 03/02/2010 - 18:12 | 251600 superz
superz's picture

Very nice View

Tue, 03/02/2010 - 18:40 | 251636 Anonymous
Anonymous's picture

Bery bad view

-1

Tue, 03/02/2010 - 18:20 | 251614 Anonymous
Anonymous's picture

i am very bullish JPY. first and foremost japans overall balancesheet is better than US unlike common belief of 200% due to different accounting issues.. secondly , JPY is less of a reserve currency IE less part of its fate being in the hand of Chinese like AMERICA.. public debt in the US is balooning now unlike japan but only the fact that it is a reserve currency and after being undervalued last year USD is rallying , but the next currency to drop post EUR and GBP is the DOLLAR and it will fall against: JPY GOLD and OIL... none of the USDJPY bulls I am sure can not explain why USDJPY is down here- because they dont understand it- and they cant see why it will go lower

Tue, 03/02/2010 - 19:12 | 251675 Anonymous
Anonymous's picture

Currently usd/jpy trading two big handles down, than the above mentioned reversal patterns, which were not even validated via strict textbook technical patterns and such....

I do agree with the author`s hunch though...price action will seldom show us its` hand and for those who can successfully interpret the market alphabet (ticker) will gain handsomely for absolutely insane risk:reward targets with funnymentals actually backing up the idea behind the whole position trade.

Tue, 03/02/2010 - 19:28 | 251692 Gordon Shumway
Gordon Shumway's picture

For all you yen bears, beware the Japanese fiscal year end repatriation shenanigans. This, combined with extreme consensus the other way, makes me think we see Y83 before eventually softening big time.

Also, watch China. If RMB creeps higher, that's definitely going to provide midterm tailwinds for JPY.

Longer term, doom. That I can agree with.

Tue, 03/02/2010 - 19:28 | 251693 Anonymous
Anonymous's picture

melt up because nothing else to buy...period

Tue, 03/02/2010 - 23:02 | 251860 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I am pretty sure dxy has topped (81.4).....maybe after it moves to 66 we get some resistence, but it is pretty much downhill from here........let the final cascade commence........

Fri, 04/16/2010 - 09:36 | 303779 mark456
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