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USDJPY Opens At 6-Year Highs, Extreme 'Relative Strength' Signals 30% Drop Potential
USDJPY has been on a tear in recent weeks. Since China unleashed QE-lite, JPY and CNY have greatly diverged with USDJPY breaking above 109 and pushing six-year highs. This recent 'relative strength' is the most extreme overbought for the currency pair since early 2001 - which saw USDJPY plunge 30% in the following six months. The tick-for-tick rise in Japan's stock market also broke a 9-month almost-perfect analog with the last time the nation raised its consumption tax.
Perhaps even more worrying in the world of FX trading, ECB Governing Council member Ignazio Visco told the G-20 that it may not need to add stimulus measures after steps in the past three months pushed down the euro noting that "there may not be a next step," since he explains, the ECB was "bold enough to reduce interest rates to a level that was unexpected to the market."
The extent of the exchange rate’s fall is "more or less, given the moves that were done between June and September, the right response," said Visco, who also heads Italy’s central bank, but added very Japan-like, "the ECB isn’t targeting any exchange-rate level." That is not what the EUR shorts will want to hear.
USDJPY is at six-year highs with RSI at its most extreme overbought since 2001 - which saw a 30% decline in the next 6 months.
9 months of almost perfect correlation with the period 17 years ago when Japan last raised its consumption tax has diverged dramatically in thge last few days as USDJPY exploded higher...
Its different this time... for now.
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Then there is the EUR, which it appears was played by the ECB once again... (as Bloomberg reports)
The European Central Bank may not need to add stimulus measures after steps in the past three months pushed down the euro, said Governing Council member Ignazio Visco
“Inflation expectations have to be back where they were,” Visco said in an interview in Cairns, Australia, where he is attending a meeting of Group of 20 finance chiefs. “This doesn’t mean that there will be a next step. We have been bold enough to reduce interest rates to a level that was unexpected to the market.”
The single currency has dropped about 6 percent since early June, when the ECB introduced a negative interest rate on excess reserves and presented a four-year lending program to fuel credit. Policy makers reduced borrowing costs further earlier this month and committed to buying asset-backed securities and covered bonds to boost the ECB’s balance sheet by as much as 1 trillion euros ($1.3 trillion).
The extent of the exchange rate’s fall is “more or less, given the moves that were done between June and September, the right response,” said Visco, who also heads Italy’s central bank. The ECB isn’t targeting any exchange-rate level, he said.
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Of course, when have these markets ever reacted in negative response to the fact that what was promised by a central banker (drove massive momentum shifts) does not occur...
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usd/jpy tracks /es (SP500) so it will keep going up until 2017 or so (after Buffets derivatives expire)
if you want to lever your way into retirement..go long usd/jpy.
expect some pullbacks along the way
~DipshitmiddleclassWhitekid
Gold will be screwed again!
Buy YCS on any all pullbacks. BTFD the yen is going to get destroyed long term.
Will drop under $1200 and hit $1130 before quarter end.
It will test $1000 in the next 60 days.
The test will fail and then it will try to break $1000 for a week and then collapse to low 900s before the end of the year.
Could do. One test at a time. $1180-$1200 is the first one. Then $1130, then $1080.
>> to low 900s before the end of the year.
I'm thinking it's going to test zero before going negative.
JPY will be 130 to the USD before much longer.
Kuroda & Shinzo Abe will go all in and commit Krugmancide together.
I concur. Well above 120 is what Japan need. And it will probably go further as the fallout from Fukujima will be accepted. Japan is heading down for 30 years or more.
I hope it goes to 2.00 even then we laugh and laugh and laugh.
Great post! Thanks Tyler!
Kuroda was printing while Yellen was tapering. Much weaker Yen wouldn't surprise me. Again, we are in uncharted territories.
JPY seems to be in a death spiral. Abenomics is insanity. Targeting 2% inflation while printing an avalaunch of money to keep governemnt bonds at near zero so that interest on government debt doesn't explode is doomed to fail. l'll have to remember "TruthinSunshine's" quote about Krugmancide
JPY is augering in. There is no hope for any reversal. Japan is done, and the great global experiment will end. Japan will go first, but the US is too far down the same path to end any different.
Agreed, but if the Yen falls first much of the wealth from Japan will for now flow in to the dollar or as they call it "the least dirty shirt in the drawer."
The writing is on the wall. Japan is facing a wall of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promises made. Japan's public debt, which stands at around 230% of its GDP and is the highest in the industrialized world.
The moment the Japaneses stock market fails to rise enough to offset inflation this will turn into a tsunami of money fleeing Japan and constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html
Exactly what I was pointing out in my article from yesterday.
Every now and then a very notable and important event occurs, sometimes it slips by without even being noticed. For months the major world currencies have traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner.
Weak demand for goods and most of this money flowing into intangible investments inflation has not been a major problem, but the seeds for its future growth have been planted everywhere. John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below.
http://brucewilds.blogspot.com/2014/09/caution-alert-currencies-may-get-...
Before I read the article, I have a need for a substantial sum of Euros for an investment and wonder what all of your Ouija boards are projecting for the dollar per Euro ? I have a few months to decide and have read that it could go below 1.200 as a possible/probable scenario. I'd like a few ZHers' opinions, preferably experienced, with whatever tealeaves and/or thoughts you may have.
Ive traded currencies over the years so I know the complexities of many factors that influence exchange rates, but don't claim to understand those complexities. I do know that interest rates and relative strength of economies significantly affect the ratios, but I absolutely believe that the governments are the biggest movers. An example would be about a year or two ago the Japanese crowd decided to trash the yen, and it went from about 75 to over 100 fairly quickly. It's hard for a novice to even draw a definitive educated guess with all interest rates hovering at zero % and even Snowdyke doesn't know where they're headed, regardless of her half assed queer mumbling when she talks. She can't even sound authoritative and in confident control.
Any ideas would be appreciated. Don't worry, I know that you aren't certain of your opinions, either, no one is.
P.S. I talked to some speculators on a flight from Houston to Miami back around 1987-1989 and the yen was 324(?) then (I hope my memory is accurate), so the USSA may be leading the race to the trash bin.
"Don't worry, I know that you aren't certain of your opinions, either, no one is."
I eat my own cooking so I'm short the Yen and the pound. I have little faith in the Euro because it has such a flawed foundation. With Italy and several other countries in trouble I see it dropping as it becomes clear they have no answers. The euro-zone has failed to make reforms.
The dollar is nothing to brag about but it still is the least dirty shirt in the drawer.
What Hath Krugman Wrought?
-Satan
Bullish !
If this keeps up I'm gonna start having problems with exports
Help us at the printing presses Abesan you're our only hope
I think a lot of people dont get it.
The WHOLE THING is coming down! What you are seeing currently are the rats scurrying around trying not to get caught.
Did I mention the WHOLE THING coming down?
Price of gold, silver the scores of the dumbass NFL are NOT GOING TO MATTER!!!
Ur shelter, safety and food well, those will be of import.
It will come down, but it won't be for atleast another 3 years. If anything, I say America has about 10-15 years left of civiliization before things get to the point where there is large areas of civil unrest.
Let's put it this way, a place like Toledo, Ohio might be or might have been a normal middle class city at one point with some nicer neighborhoods, but that is no longer the case. If it's bad now, in 10 years it will be more akin to Detroit.
Communitys in Northern NJ, NYC, Long Island and CT (where the .01% reside) will carry on as usual but there will be community check points to get in to those areas. It will be like apartheid South Africa, where the plutocrats have armys to keep the proles off their backs.
Given the lack of interest rate differential vs. the days of yore, will the Carry Trade be re-dubbed the Miscarry Trade? Or, depending on 'geopolitics', perhaps the Kerry Trade ?
Strong dollar buys lots of gold and silver.
Seems weird to compare the current situation to the past. We weren't doing a global money printing experiment in the past, so it's an apples to oranges comparison.
I don't think David Stockman is too impressed with the guys running the European Common Market.I'll short the hell out of the EURO pig-bitch on any rally.She'll be a ruff winter in Euroland.
http://davidstockmanscontracorner.com/why-ecbs-tltro-fizzled-european-ba...
Oddly enough, the banks SET sll FX prices ... of there is a 30% drop potential, then it is intentional.
There are no free markets when banks are involved.
Think about it.
a brief dip down to 10866 and already back up to 109...Nikkei back poitive and Dow has swiftly bounced back up 50 points panic over?