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Citi Warns "The Land Of The Rising Sun Is Setting"
In the "land of the rising sun," Citi FX Technicals group warns, the sun also goes down sometimes. The present set up on the monthly and daily charts on USDJPY suggests it is time to be cautious, with real danger that we could be 'on the cusp' of a material correction lower for the first time in this 3-month rally. A move as low as 105.50 is not out of the question and that is terrible news for Japanese stocks and Abe's approval ratings.
Via Citi FX Technicals,
Given the magnitude and speed of the USDJPY move last month it is worth looking at the long term “log” chart for guidance. When we do, we are a little bit cautious in the near term.
Why?
Our target for the end of 2014 has been around 110.50-111.00 and the speed of the move in the last 3 months has brought us close to that range quicker than we would have expected.
There is major resistance above here on this chart from 110.34-110.66 (76.4% pullback of the 2007-2011 fall, horizontal resistance from the March-August 2008 bounce and trend line off the 2002 and 2007 peaks.)
In addition, as we have surged higher last month there is a real danger that we now see triple momentum divergence on the monthly USDJPY chart which could suggest a material correction.
Add to this the rise in “EM” jitters, “Equity market” jitters , “Newport Beach” jitters and it seems only a matter of time before we hear a crescendo of “risk off” comments- (not traditionally good for USDJPY)
(In August-October 1998... a period we are very focused on historically the 2 prongs of concern were Russian default and LTCM leverage…..history does not repeat but it often rhymes)
It seems to us that it may be a good time to exit JPY short positions and let the “dust settle” for a while”
October 2013- Jan 2014: (Q4,2013)
- Up move in USDJPY begins in the 2nd week of the 2nd month of the quarter
- Rally peaks on the first full trading day of the next quarter (02 January)
- Rally is 889.5 pips over 86 days
- Correction begins on the first full trading day of the new quarter as USDJPY posts a bearish outside day at the peak of the up move.
- This sees the Q3 rally being corrected by 50% before USDJPY bottoms out
July 2014- Oct 2014: (Q3, 2014)
- Up move in USDJPY begins in the 2nd week of the 2nd month of the quarter
- Rally peaks on the first full trading day of the next quarter (01 October)
- Rally is 902.5 pips over 83 days
- Correction begins on the first full trading day of the new quarter as USDJPY posts a bearish outside day at the peak of the up move.
- If we were to see the Q4 rally being corrected by 50% before USDJPY bottoms out that would suggest a move to 105.48, possibly over the next month.
This last leg up has not had yield support
Weekly chart is showing an evening star like pattern very similar to that seen as the Nikkei peak at the end of Dec 2013 (Same point that the USDJPY rally was close to an end)
The rise in implied volatility seems to have paused (3 month) 3 weeks ago.
As in 2012-2013 that rise in volatility gave a good signal of a potential break higher in USDJPY
In Feb 2013 as the move up in volatility paused USDJPY initially continued higher before we saw a quick high to low correction of 4.12%. A similar correction this time off the present trend high of 110.09 would take us to 105.55 in USDJPY (The suggested corrective target in the daily chart above comparing this move to Q4, 2013.)
We also saw the rise in implied volatility stall ahead of the 2 Jan 2014 peak in USDJPY
All this suggests that at this point the short JPY trade does not look to have a great “risk versus reward” dynamic
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Are people still living there? I thought so, better define "setting" for us. Not that folks on a fucking island shouldn't be very careful about how they deploy their resources and capital but...
the world in a nutshell, too many fucking failed leaders of the oligarchs telling us all everything is fine.
Interesting times indeed.
"Full faith and credit"
tick tock.
Why if Japan disappears into The Pacific , does it hurt Gold ?????
no, world wars have real consequences.
765 tons are only 3% of reserves so could come up for sale to balance books in pinch for cash.
For once Citi says something that makes sense... That would imply a retrace in the USDX.
Looks like we have another week of bond traders itching their asses. ;-)
...and "all time highs" in equities again...
can I interest you in a silver tea tray?
For once Citi says something that makes sense...
You beat me to it
Oh well, we'll always have Pearl Harbor and Hiroshima.
(optional Sarc tag for those who need it)
Wait till the typhoon passes.
If we are ending QE and they are Turbo charging their QE, then his charts mean shit. So do charts matter or do fundementls matter? Fuck you BOA. I am on the other side of the trade and not leaving. Either they inflate or they default, those are their only choices.
Does this mean Suchi's will be abandoned in Amerika? Does this mean Colleges in the USSA will stop teaching how Japs work and their ethics related to work.
Not merely Fucked, Fukishima'ed.
How is it any different than Amerika? Carry trade Yen is huge
Just a matter of time before the Federal Reserve's grand printing experiment implodes. The US then follows a bit later.
Since tapering began the yen carry trade has been booming with huge leverage, while the Fed would never admit it - this borrowed money has financed US bond purchases. When the carry trade goes into reverse because the yen is no longer weakening the emperor will be seen to be wearing no clothes.
Abe will have plenty of paper to wipe his ass.
The 'Land of the Rising Sun' ... that is so pre-Fukushima.
How about ... 'The Land of Rising Cesium, Strontium, & Tritium'
Despite stat analysis, in the end, the bet is still 50/50 or else every ZH'er would be a billionaire by now.
jb
this chart is bullshit
usd/jpy tracks /es (Sp500) and we all know where that is going
lever your way into retirement via usd/jpy spot!!
kyle bass is long on this bitch too.
the japense are printing their way into peril. CitiFX wants everyone to sell into this so the big boys can do what they always do- win!
I would think Japan has a bigger problem if the Yen doesn't retrace here.
As Kyle Bass so eloquently opined some time ago, Japan is a bug in search of a windshield.
http://olduvai.ca
If you look at chart exhibit #2. It's obvious that both pullbacks in usd/jpy were at 50% of the overall <measured distance>
It's also "painfully obvious" on the daily charts that usd/jpy is making lower lows. I realize the yen is going to disintegrate at some point. There will be costs globally, when that happens. Japan is the 3rd largest economy on Earth.
The yen is very stretched against various crosses, and needs to "boil off" a bit.
nzdjpy??
kiwi is weak as fuck.
yen is depreciating against alot of stuff of the past few months (cad, sgd, gbp, etc)
How about some Japanese Co-prosperity ? See
http://andreswhy.blogspot.com/2014/02/chinajapan-boomboom.html
It's tempting to think that if a first-world country like Japan can make it to a debt-to-GDP of ~235% without imploding, that a country with less than half that level - like the US - ought to be safe. Instead, it seems likely that Japan will simply end up being in the leading wave of currency failures.
It's one thing to say that Zimbabwe's currency is worthless, but seeing the Yen discarded or devalued will test the man on the street's faith in fiat, such that the threshold to question the dollar's legitimacy will be significantly lower.
The land of the setting sun is better.