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USD/JPY: What doesn’t go up….
By Sean Lee || May 16, 2011 at 21:34 GMT
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Why won’t USD/JPY rally? That’s the question a lot of traders are asking themselves and I’m hoping someone will be able to give me a satisfactory answer. A market that keeps running out of bullish momentum 100 pips off short-term lows and close to historical lows is certainly not a bullish market. The BOJ may try and intervene but they can forget about getting any help from the ECB, Fed etc this time around. I’ve been trying to sell the Yen on the crosses but that is also exceedingly hard work. It seems to me that the vast majority of traders are of a similar view, either bullish USD/JPY or bullish on the crosses, so who is selling and why?
Well the CFTC yen tide turned again last week, Sean.
http://www.reuters.com/article/2011/05/13/markets-forex-imm-idUSN1325179620110513
Ever since El Erian of Pimco returned from a Japan visit after the earthquake, PIMCO has been selling USDJPY and keeping a lid on the pair. Has to do with their bet on treasuries. They talked about a lot of repatriation by Japanese insurers and they are definetely selling dollars against the yen based on what they know.
I think that USDJPY gets dragged down by the crosses rather than it being a driver sometimes … It might be what we are seeing
I think the answer on your question is that the market is run by the computers…we have an oil going down, along with the gold (those two assets are overvalued and need a correction)…the computers are used to to go risk off when oil is coming down, so they sell EUR/JPY and EUR/USD and they drag USD/JPY down as well as the stock market indices…if oil goes down, equities should go up because of less inflationary pressures and slower monetary tightening on one hand, but on the other there are some oil companies in the indices so we could tolerate drop in the equities as well…EUR/JPY goes down, dragging EUR/USD down as well, so if the USD index is up, that’s negative for the equites…drop in the EUR/JPY is significant, so it doesn’t allow USD/JPY to go higher, and also this pair represents a risk measurement factor but it’s downmove is limited due to BOJ intervention possibility…
I agree Nic
Good morning, Sean. With regard to your JPY question, I believe that there can only be two logical trains of economic thought: 1) that which Pedro has alluded to above; and/or, 2) Japanese industry is redistributing itself (without announcing the fact) – away from the US and more toward China, e. g., : http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20110316000048&cid=1205
Taking a quick look at some Data from the MOF: http://www.mof.go.jp/international_policy/reference/itn_transactions_in_securities/month.pdf
It looks like approx $58 billion usd was invested/repatriated back to Japan in April. Granted that may not directly translate into Yen purchases. Also their trade balance for April showed a deficit of about $97 Billion usd so the pieces are slowly coming together.
Probably should have said a net $58 billion ;P
Think that truth is hitting home that QE 1 n 2 havnt worked and sooner or later Stocks will also get the memo… ok Im a bear but,, as we learnt in 2007/2008 Yen is the place youll want to hide when it all comes undone.
I should have prefaced my comments with – that of course if QE was at all aimed at growth rather than just suring up banks balance sheets and generating zero cost leverage to destroy the threat of deflation by buying commodity futures….
Thought it was also worth giving this another airing:
http://www.forexlive.com/blog/2011/02/08/a-structural-issue-hampering-usdjpy-that-wont-go-away-soon/
I think this recent USD bullish move is only half way done but in the grand scheme, I think the long term USD bearish trend is not dead. I think smart money knows that. Even if the yen is going to be bearish longer term, why play a pair where both currencies are bearish long term when you can go long on a pair like EURAUD? (if you happen to believe that EUR is still in a long term trend and AUD is going to drop – I went long on EURAUD at 1.3280). I am also currently short EURUSD but planning on going long around the 1.3200 area. I use an algorithm I designed for my analysis.
i have been selling usdjpy sporadically.. reason being if u would see that there has been lots of risk aversion for last 1-2 weeks but usdjpy is still at 81.. so i feel if risk aversion picks up ; usdjpy will fall a lot..
secondly, fall in yields for last 1-2 weeks..
and i will anyway usdjpy cannot go up ever *winks* because of exporters, insurers sitting on sellers.. It goes up only before NFP numbers…
With all that is going on in Japan, and with the strong Yen, export companies will divert their workforce out of Japan .. unemployment will increase.. Tourism will also be affected.. Etc..
It will soon be another US in the making in terms of borrowing.. And this bubble will burst when traders unwind their position..
Good luck guys..
Event JPMorgan has a bearish outlook for USDJPY, 78 by March 2012: http://www.bloomberg.com/news/2011-05-11/yen-to-hit-record-as-quake-spurs-risk-averse-repatriation-jpmorgan-says.html