Thread: Discuss USD/JPY, GBP/JPY, and other JPY Pairs

Originally Posted by John Kicklighter

My short-side breakout orders served me well. Took only a couple hours to take profit!

Had two orders set at 103.30. Stop was wide at 100 points, but that is the kind of stop you have to work with when you play big breakouts that are prone to retracements before continuation.

First target was hit at 120 then the second at 210. The second target was just a number I put in while writing an article. Was going to adjust it later. Didn't expect the market to move this quickly....

I have never seen this much momentum without some stabalization and at least a modest retracement. Going to be watching this pair (and all the yen crosses - which are insane) like a hawk...

I am not so brave, I "scalped" the equivalent of 25 pips on 390k volume. [EDIT: I trade at 20-25:1 leverage, so that was a 40% return in one day!] I am happy to walk away with that much. I think a bottom may be in for the time being. If nothing else, because BOJ can't allow it under 100 if they can help it. Seems like just a matter of time now though. We should see a retest of 95 before this is over. From there, probably a bounce for a while. (I hope, the whole system will be crashing if it keeps going from there!)

Hi, Blizzard --

Days like today are the good ones for traditional traders who play breakouts and use stops. For me it is icing on the cake. I trade with weekly profit targets and today has already hit this week's target. I could just take the rest of the week off. But I have a feeling this week will continue to be fireworks in the carry trade pairs, so I will be dipping in and out a few more times.

The bailout has turned out to be waste of money, it is looking like. Even if they could redeem all of the bad MBS on the books, they will still have a consumer credit crisis going forwards that will be just as ugly. I had hoped the Treasury would keep themselves away from the black hole, but they decided to jump in. I think things will only go from bad to worse. I just hope it will be a steady decline and not a sudden crash.

Originally Posted by Firewalker

The bailout has turned out to be waste of money, it is looking like. Even if they could redeem all of the bad MBS on the books, they will still have a consumer credit crisis going forwards that will be just as ugly. I had hoped the Treasury would keep themselves away from the black hole, but they decided to jump in. I think things will only go from bad to worse. I just hope it will be a steady decline and not a sudden crash.

I agree about the consumer's contribution (besides housing) contributing to momentum in the these credit problems. Another issue that seems to have been glossed over: the US bailout is good only for the US. However, the financial troubles were global ones even before these most recent series of bank failures. If the credit market (which is global) tightens unwaveringly despite the removal of bad debt off the books of US banks, they will still suffer as more traditional investments will deteriorate and lending is more or less absent. In effect, it seems they are just giving banks $700 billion more to lose if this effort isn't expanded to other G10 economies.

The FOMC surprised the markets by taking a preemptive approach in lowering borrowing costs, and cut 50bp to lower the benchmark interest rate to 1.50% from 2.00% early this morning. Furthermore, the ECB, BoE, SNB, and the BoC have also reduced their respective interest rate by 50 points in a coordinated effort to stabilize the market. Indeed, central banks all over the globe have come together to resolve the downturn in the global financial market, and we may see further action by the banks as growth concerns come into focus. Further developments to follow.

Originally Posted by John Rivera

The FOMC surprised the markets by taking a preemptive approach in lowering borrowing costs, and cut 50bp to lower the benchmark interest rate to 1.50% from 2.00% early this morning. Furthermore, the ECB, BoE, SNB, and the BoC have also reduced their respective interest rate by 50 points in a coordinated effort to stabilize the market. Indeed, central banks all over the globe have come together to resolve the downturn in the global financial market, and we may see further action by the banks as growth concerns come into focus. Further developments to follow.

Yes, but what does reducing borrowing costs do for us when it is the lender who is out of reserves to lend against?

Originally Posted by Firewalker

Yes, but what does reducing borrowing costs do for us when it is the lender who is out of reserves to lend against?

Well, the consumer/lender relationship is a secondary effect. The lower benchmark lending rates will first and foremost offer more capital to banks; and there is lower risk of defaults on their part when we consider that their cost of lending has been lowered.

Besides being just a practical move though, this coordinated cut was really a sign everyone that the global powers would work together to secure the markets. They need to reestablish confidence - investor and lender. If they can alleviate fears that every counterparty is at risk of default, they will be able to thaw sky high lending rates, open up access to capital and allow assets to appreciate once again.

Originally Posted by John Kicklighter

Well, the consumer/lender relationship is a secondary effect. The lower benchmark lending rates will first and foremost offer more capital to banks; and there is lower risk of defaults on their part when we consider that their cost of lending has been lowered.

Besides being just a practical move though, this coordinated cut was really a sign everyone that the global powers would work together to secure the markets. They need to reestablish confidence - investor and lender. If they can alleviate fears that every counterparty is at risk of default, they will be able to thaw sky high lending rates, open up access to capital and allow assets to appreciate once again.

Thanks for the reply, John. I am hoping this will stabilize without it going the next step. It sounds as though Europe is getting a handle on things now.

Originally Posted by Firewalker

Thanks for the reply, John. I am hoping this will stabilize without it going the next step. It sounds as though Europe is getting a handle on things now.

Well, the Euro Zone will need to come together if they want to save their own economy. These individual, national plans (while good) aren't sufficient for the region. Right now, there are some European economies (like Spain) that simply can't survive this without help from their other member counterparts.

The UK has got it right though. They have put up 500 billion pounds to put a floor beneath their market. That is more money than the US, covering less than 10 major banks and far fewer citizens than what they have stateside. Aside from the recession they are suffering, it is looking pretty good for their markets.

Don't discount that Japan is out of the woods though. Until this fiasco, investment and inflation were still suffering from the last financial crisis back in 1997/98 (when they essentially said their banks were technical insolvent - like Fannie and Freddie...). Returns are horrid in Japan, there is no domestic speculative flows and the economy is already pushing a recession. They could be in for another drawn out 10 years of malaise if they don't fundamentally change the investment environment there.

My concern would center around the USD/JPY ex rate. According to the recent Dailyfx analysis , 54% of traders is still shorting on the USD/JPY as oppose to the 59% from yesterday. Taking into consideration the global recent cut, which has calmed down the investors, I still believe their is still lack of confidence in the US that will linger for another 5-6 months. The USD should keep on weakening until, I say, the first support: USD/YEN 99.1 ( I would say 99.1 and not 98.9 based on psychological trading factors ) , and then turn to an upward shot-term curve that will resist around the 101.5 . From there after, The story will unfold depending on the investors trust in the US market.

Main point: USD/JPD is positively correlated with NASDAQ, and negatively correlated with Gold.

Any other views?

Originally Posted by John Kicklighter

Well, the Euro Zone will need to come together if they want to save their own economy. These individual, national plans (while good) aren't sufficient for the region. Right now, there are some European economies (like Spain) that simply can't survive this without help from their other member counterparts.

The UK has got it right though. They have put up 500 billion pounds to put a floor beneath their market. That is more money than the US, covering less than 10 major banks and far fewer citizens than what they have stateside. Aside from the recession they are suffering, it is looking pretty good for their markets.

Don't discount that Japan is out of the woods though. Until this fiasco, investment and inflation were still suffering from the last financial crisis back in 1997/98 (when they essentially said their banks were technical insolvent - like Fannie and Freddie...). Returns are horrid in Japan, there is no domestic speculative flows and the economy is already pushing a recession. They could be in for another drawn out 10 years of malaise if they don't fundamentally change the investment environment there.

No, I am not optimistic about export-dependent economies at all. Asia has a world of hurt coming down the pipe as the consuming economies contract drastically. I am still very bearish the world economy because of the extreme polarization between import/export economies that had arisen with the excessive credit leverage in the consuming economies. Unless I have something fundamentally wrong, or something interrupts the cycle, I am expecting something on the order of a depression or a very long recession that would last a least a couple years (into 2010).

Originally Posted by Yaz_Tim

My concern would center around the USD/JPY ex rate. According to the recent Dailyfx analysis , 54% of traders is still shorting on the USD/JPY as oppose to the 59% from yesterday. Taking into consideration the global recent cut, which has calmed down the investors, I still believe their is still lack of confidence in the US that will linger for another 5-6 months. The USD should keep on weakening until, I say, the first support: USD/YEN 99.1 ( I would say 99.1 and not 98.9 based on psychological trading factors ) , and then turn to an upward shot-term curve that will resist around the 101.5 . From there after, The story will unfold depending on the investors trust in the US market.

Main point: USD/JPD is positively correlated with NASDAQ, and negatively correlated with Gold.

Any other views?

I am pretty nervous at this point about an eventual break of 101.50, but it has held and US equities are not wanting to rally yet. Perhaps we will see another dip below 100. I think the market is split at this point about whether we have a short/medium term bottom in place or if we should take another leg down. It looks like an arm wrestling match.

EDIT: Looking at the chart, I would think a conservative target for a breakdown would be more like 99.50/75, assuming the trend line between the 98.62 and 98.95 lows holds. If it were to break, then another leg down would probably happen. But markets are exhausted from all of this selling. I think the trend line would hold and a rally would begin from there that would take out 101.50 and continue toward 103.

EDIT #2: There it went. The trend holding at this moment. But with the US markets crashing now and the Lehman CDS auction looming, tonight may well take it out. The 1.382 of the move from 106 to 98.60 is 95.73. But I would take profit ahead of the March low and re-enter on a break of it. Below 95 ... the Gates of Hell await us.

Unbelievable. A test below 98 and then back above 100. These are some incredible times.

If the BoJ didn't have bigger fish to fry (like stabilizing their financial markets and economy) they would probably have moved in to protect the 100 USDJPY exchange rate like they have done in the past. Right now, there focus needs to be on domestic issues though...

Originally Posted by blizzard

Speaking about the bailouts. . . .

How come we hear only about the US, GB and euro bank bailouts? What about the canadian banks? They are part of the G-7 too. Why arent those guys bailing out banks? Too cheap? or do they have non greedy bankers or lots of regulations?

Does anyone remember a Canadian bank collapsing?

Home bank, 1923. before your parents were even born.

Canada joined in the bailout (they injected liquidity and cut rates) because they definitely saw their exposure to this. At the same time, the economy and financial system has been pretty good there. There is a reason for this. Canada has far fewer banks to keep track of, so they could essentially guarantee all their banks without it being too much of a burden on government coffers. Investors know this, so panic hasn't yet been a major issue there.

Here we are back at 100. Any bets on a revisit of 98 again? Seems as though the world wants to go to the Gates of Hell regardless of all of these guarantees, injections, nationalizations, rate cuts, etc. What's the next step? Bond market implosions?

No matter what the world's governments do, credit has to contract. From an investment standpoint, during the 2002-2007 boom, there was far too much leverage heaped on as financial firms were trying to create outstanding returns from regular assets. From consumers (the US and UK particularly), home equity and easy access to credit has left the biggest component of overall growth with a big tab to settle.

This translates into bear markets over the medium term as all this unwinding continues. However, this doesn't necessarily have to have such a strong correlation to the yen going forward (indeed it is starting to ease already). The yen will continue to rise as long as overall risk aversion is heightened. When we go back to it just being a bear market, I feel yen will loose its momentum.

What do you think Firewalker?