You need to be crazier than a gang of French clowns to trade GBP/JPY on days like today but, dang, it sure pays when you’re on the right side.
The pair has carved out a new high at 179.55 and is up nearly 5 full figures on the day. The daily chart is almost comical given the huge bullish candle but what should really irk news traders is that the move didn’t came super suddenly.
If you knew what the BOJ decision meant, there was plenty of time to get on board.
GBPJPY 1 minute candles
Anyway, trading is the easiest occupation — in hindsight.
The NZDUSD has pushed lower in NY trading session. The price high stalled at the 100/200 hour MA levels (blue and green line in the chart below). The currency pair was supported – up until that point – by the carry trade buyers. Rates in NZD remain higher leading to rollover/carry profits for traders long the pair.
The NZDUSD has reversed in the NY session.
The RBNZ this week warned that the currency remained high and was due for a significant drop. They also took back the comment that rates would likely need to rise further to slow inflation. Inflation in the last quarter came in weaker, so they are feeling that inflation will not require more tightening.
They did not intervene much in the period leading up to this meeting, but did a fair amount of in the period before the September meeting. You wonder with the BOJ and the EUR starting to go full speed ahead with additional stimulus, if the RBNZ will feel a need to control the rise in their currency. More intervention perhaps? Currency wars are heating up.
The RBNZ has the dilemma of being the lone wolf who has raised rates. It is hard to raise rates, have higher rates, and look for a lower currency at the same time. The thing that might feed a lower move is therefore intervention that is meaningful, and traders getting too “carry traded” up.
Technically, the low from yesterday and on Wednesday comes in at the 0.7765 level. The pair fell below the trend line connecting the hourly lows before Wednesday/Thursday central bank plunge (at 0.7826). That trend line has been a dividing line for bullish and bearish in the last 24 hours of trading and will remain a risk defining level for shorts now.
Looking at the 5 minute chart below, the pair the 38.2%-50% of the move down from the high comes in at 0.78186-0.78301. The 0.7826 trend line from the hourly chart comes in this area. Going forward, this increases that area as a technical level to follow. If buying, you want to see the price move back above this level. There can be moves lower still, but watch for the snap backs off support levels from the carry trading dip buyers.
The 5 minute chart in the NZDUSD has reversed the early action. 0.7818 is resistance now.
USD/JPY cut through the aforementioned buy stops above 112.20 and has quickly rallied to 112.46. More offers noted at 112.50. Feels like we’ll blink and be at 120.
The move isn’t confined to that pair as USD/CAD also rallied above 1.13 and quickly to 1.1320. Corporate offers are said to stretch up to 1.1335 with more stops above 1.1340, 1.1385 and 1.1400.
It would be some kind of zombie.
The thing has been dragged out and shot a half-dozen times now and keeps rising from the dead. The low today was $79.55 but once again it has dug itself out of a grave and is back up above $80 to $80.20.
Maybe the horror show will finally end after Halloween.
WTI crude oil
The 2008 high in USD/JPY was 112.21 and the high so far today is 112.20. The pair is trying to break through again.
There is talk of large buy stops above 112.20. More offers at 112.50, including a barrier and more buy stops above. Some technical resistance at 112.63.
After that, just watch the big figures and half figures.
USDJPY monthly chart
Statement on Dissenting Vote at October 29, 2014, Meeting of the Federal Open Market Committee
Earlier this week, I dissented from the Federal Open Market Committee (FOMC) decision. I felt that the FOMC needed to reduce possible downside risk to the credibility of its 2 percent inflation target by taking more purposeful steps to move inflation back up to 2 percent. In this statement, I will elaborate on the thinking behind my decision.
At the launch of the reduction in asset purchases in December 2013, the FOMC statement said that the Committee would be “monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.” At this stage, I see no such evidence. In my assessment, the medium-term outlook for inflation has shown no overall improvement since last December and, indeed, is arguably worse. Failing to act in response to this subdued inflation outlook increases the downside risk to the credibility of our 2 percent inflation target. Market-based measures of longer-term inflation expectations have fallen recently to unusually low levels, a decline that I believe reflects that kind of increased downside risk.
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The GBPUSD is less trend like in trading today (comparatively). In fact, it is downright choppy even in it’s trend move to new lows.
The GBPUSD is trying to make a break away but in fits and start.
It did make new lows for the week but remains above the lows for the month (see hourly chart above). The move below the low from yesterday (which was equal to the low levels from October 3rd and 6th (see hourly chart above), was brief. This has me concerned for the sellers/bears who are trying to distance itself from a consolidation area that has contained the pair since October 16 (see red box in hourly chart above).
The GBPUSD held the 38.2% on the last correction higher. Activity is choppy though even in the down move.
Looking at the 5 minute chart, the choppy action is evident. Big, up and down bars has characterized the move lower from the 1.6010 high. Like the other analysis done today, I am eyeing the correction of the last move lower for bearish clues. If the price can remain below the 38.2-50% the sellers remain in control (traders can lean against the level). If the price moves above, I lose confidence in the pair.
We just held the 38.2% and testing the lows from yesterday so the sellers are remaining in control, but activity remains….well choppy.
Comments from Kocherlakota:
- Failure to respond to ‘arguably worse’ inflation outlook risks credibility
- Fed should ‘do what it takes’ to reach inflation goal as soon as possible
- Fed could have kept buying bonds to boost inflation
- Fed could have committed to keep rates near zero until inflation outlook rises
- Fed needs to show determination on inflation goal
- Full statement
What Kocherlakota is talking about are 5-year breakevens, which are a proxy for what the market is expecting on inflation.
5 year breakevens
A big part of that is the fall in oil/commodity prices but they’re near the lowest since 2011 and indicating just 1.57% inflation, on average, for the next 5 years. So either the market is wrong or the Fed is.
The final revisions to the October consumer sentiment survey from the University of Michigan/Reuters.
- Highest since 2007
- Preliminary reading was 86.4
- Sept reading was 84.6
- Conditions 98.9 vs 98.3 prelim
- Future expectations 79.6 vs 78.2 prelim
Consumer confidence was very strong earlier in the month and the Michigan numbers confirm some of the strength although it’s generally focused (like consumer confidence) in the expectations side.
U Mich consumer confidence
Highlights of the October Chicago manufacturing PMI:
- Highest since Oct 2013
- Prior was 60.5
- Prices paid 60.2
- New orders 73.6 (from 60.0)
- Employment 60.2 (from 56.2)
From the release:
September’s slowing proved temporary and the tone of the Oct report was strong, with the three key ordering components partially or totally reversing September’s weakness. Production and Order Backlogs were back to Aug’s levels. Due to strong ordering, Employment rose to the highest since Nov-13.
The number is distributed to subscribers 3 minutes early. This is a dangerous report to trade for retail because the market move came entirely on the subscriber release.
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