JPY Trade: Reloaded

Morpheus: I imagine that right now, you're feeling a bit like Alice. Hmm? Tumbling down the rabbit hole?
Neo: You could say that.

--The Matrix

I do feel a bit like Alice. TheUSD/JPY pair rallied in London and New York trading after selling off in Asian trading. The FX rate established a new 15-year low during the session, trading down to levels of 83.35. I took profits on the pop, during morning U.S. trading, around 84.00 levels. Prices recovered when Finance Minister Yoshihiko Noda 'said he is prepared to take “bold” steps on currencies if necessary.' However, I am contemplating a long position in the Yen until 82.50. I watched the tape for the majority of the past 48 hours (fun times) to get a feel for directionality. I am confident prices will move lower.

Part of me wants to believe all of this intervention talk, led by PM candidate Ichiro Ozawa, will lead to more 'normalized' price levels (i.e. 88-90). However, my sinister half believes this was a short-covering rally today. In the ten minutes preceding the Beige Book announcement the pair came to an abrupt slow down in trading. Once the words 'decelerated growth' were uttered on CNBC prices gapped down to 83.79-81. During President Obama's 'Economic Speech', shortly thereafter, prices jumped back up to 83.92-95 levels. Hence, U.S. economic speak was not a significant momentum catalyst, net of direction, for the pair.


JPY 2day chart- 5 minute bars



Will the tape top out at 84.125 resistance levels? What has changed over the past 48 hours to stunt the momentum of a six month downtrend in the USD/JPY pair? Clearly, many uncertainties and rapid-fire change engulf trading. Thus, I look to a glut of international economic data releases that may potentially impact price directionality:

19:50- JPY BSI Large Manufacturing Conditions
01:00- JPY Household Confidence
02:00- JPY Machine Tool Orders
02:00- German CPI (MoM)
04:30- ECB Monthly Report
07:00- BoE Interest Rate Decision
08:30- U.S. Trade Balance
08:30- U.S. Initial Jobless Claims
19:50- JPY GDP(QoQ)
19:50 BoJ Monetary Policy Meeting Minutes


If I have learned one thing in my short few years of trading it is, 'don't trade against the tape.' I will leave you with some wise words from Adam Smith:

"The chance of gain by every man is more or less overvalued, and the chance of loss is by most men undervalued and by scarce any man who is in tolerable health and spirits valued more than it is worth."

Patrick M. Ambrus
Twitter: AnalyzeCapital

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USD/JPY = 93.9150 as of 19:37 EST. The 'Matrix' theme for this post was inspired by a fellow trader of mine, Sauros, please view his blog: http://blog.thelordoftrading.com/2010/09/welcome-back-to-real-world-neo.html. Yoshihiko Noda quote was borrowed from Bloomberg.com.

The Three Musketeers: USD/JPY, VIX, & SPX

USD/JPY 6 month Daily Chart



-I expect to see a retest of 83.75 levels, possibly as low as 83.25
-The BOJ cannot solely rely on tough talk to weaken the Yen, they must show & prove intervention to the market
-Momentum and Volatility remain flat; no reason to get long or short until a catalyst appears
-The 20 day SMA will serve as short-term resistance; 85.75-86.25
-RSI resistance at 55 levels remains firm
-Don't discount strong economic data; Unemployment sits at 5.3% and a Current Account Surplus is 3.3% of GDP.

Trade: I will get long once I see a retest of 83.75 lows. The BOJ will intervene through Quantitative Easing policies in order to allow the exchange rate to bounce to the upside. Once long, I'm looking for 800-1000 pips to the upside.

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VIX 6 month Daily



-200 Day SMA has held as a floor since the 'Flash Crash'
-The 20 day SMA is about to cross the 50 day
-RSI is poised to break through 60 and test 70 overbought levels last seen in May
-Momentum has plenty of room up to 2.5
-As long as money continues to flow out of Equities into Bonds, volatility will persist

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SPX 6 month Daily



-A head and shoulders reversal pattern is well underway
-RSI failed at 50 and will go low until it tests oversold territory at 30
-Momentum topped out and has plenty of room to the downside
-The 20 day SMA will converge with the 50 day SMA in the next couple of trading sessions
-The above chart supplements the VIX story
-This week Consumer Sentiment, China PMI, Euro Zone PMI, U.S. ISM, and NFP take the market sentiment spotlight

Trade: Short SPX till 1000. Look for short-covering/a relief rally before entry. ES Mini Futures are a great place to start. Also, the ProShares UltraShort S&P500 ETF SDS is another way to double down on your bets.

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Related ETFs: ProShares UltraShort S&P500 (SDS), CurrencyShares Japanese Yen Trust (FXY), iShares MSCI Japan Index (EWJ), Consumer Discret Select Sector SPDR (XLY)


Patrick M. Ambrus
Analyze Capital LLC
Twitter: AnalyzeCapital

Japan GDP Growth

The Gross Domestic Product (GDP) in Japan expanded at an annual rate of 5.00 percent in the last quarter. Japan Gross Domestic Product is worth 5068 billion dollars or 8.17% of the world economy, according to the World Bank. Japan's industrialized, free market economy is the second-largest in the world. Its economy is highly efficient and competitive in areas linked to international trade, but productivity is far lower in protected areas such as agriculture, distribution, and services. Japan's reservoir of industrial leadership and technicians, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade produced a mature industrial economy. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy. This page includes: Japan GDP Growth Rate chart, historical data and news.

tradingeconomics.com

Export oriented growth remains resilient. However, The world's second largest economy faces a grave test of fiscal fat camp. The island's budget deficit as a percent of GDP staggers at -7.5%. Also, political reform/turnover transcends any progress made from previous fiscal reform.

Alas not all hope is lost. Deflation fears begin to subside while unemployment holds around 5%. Additionally, Industrial production surged 17.0% from June 2009. Now, Japan's leadership needs to make lemonade. Naoto Kan a former finance minister and current PM, may be the correct leader to tame the ravenous debt beast as well as exploit the island's strengths.


Patrick M. Ambrus
Analyze Capital LLC
Twitter: Analyze Capital

Chinese Equity Recap

Via Bloomberg:

China Stocks Rise Most in Two Weeks on Report of Higher Exports

China’s stocks rose the most in more than two weeks as Reuters reported a surge in the nation’s exports in May and higher-than-estimated new loans, signaling Europe’s debt crisis hasn’t derailed economic growth.

The Shanghai Composite Index climbed 2.5 percent to 2,576.93 at 2:48 p.m., reversing a decline of as much as 0.5 percent and set for its biggest gain since May 24. The Shanghai gauge has lost 22 percent this year on concern policymakers will tighten policy excessively even as Europe’s debt crisis slows growth in China’s biggest export market.

The CSI 300 Index rallied 2.6 percent to 2,769.35, with an index tracking financial stocks surging 4.1 percent, the most since Dec. 4, 2009.

Monetary Policy

The loan figure “is far more than our estimates,” Jacky Zhang, stock analyst at Capital Securities said in a phone interview in Shanghai. “It shows the government may adopt a relatively easier monetary policy in the second half.”

Reuters also reported consumer prices rose 3.1 percent in May, citing the same unnamed people. Economists forecast a 3 percent gain in consumer prices.



The new loan plans in China are trying to incentive the market, especially the non-housing markets. Still waiting for the new policies to solve the demand and extra supply problem in equity market.



Liz Liu
Summer Analyst
Analyze Capital LLC

Morning Recap-06.01.2010

Asian Market Reaction Consequence

Via Bloomberg

"June 1 (Bloomberg) -- Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008, as investors speculated over the future of Japan’s prime minister and Chinese manufacturing growth slowed."

"The Shanghai Composite Index has tumbled 22 percent this year as the People’s Bank of China raised bank reserve requirements three times to help cool property markets."

"Chinese economic growth may slow to an annual rate of 7 percent to 8 percent by the end of the year or early 2011, from 11.9 percent in the first quarter of 2010, Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked, said in Sao Paulo yesterday."

- China's May Manufacturing Expands at Slower Pace

- PMI fell from 55.7 to 53.9 in April

- Lead worry of the commodity market

- Asian Stock Market fell on China's manufacturing report

- MSCI Asia Pacific Index fell 0.8 percent

- Futures on S&P 500 Index decreases 0.3 percent

- China's commodity market reserves

Liz T. Liu

Summer Analyst

Analyze Capital LLC