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JPY at end of trend?
- Thread starter JSSPMK
- Start date
Which is Right, Bond Spreads or Exchange Rates?
January 10, 2011
Despite heavily lagging the rally in the US market and especially the robust Asian markets, the JPY-denominated Nikkei 225 has rallied 19.7% from an August 2010 low of 8,796.45. The Japanese benchmark has seen bullish technical "golden crosses" between its 13-week and 26-week moving averages, as well as its 50-day & 200-day moving averages the bullish technical indicators plus improving trading volume indicate there is some sustainability in this rally. Further, the Nikkei 225 is still some 7.7% below its April 2010 high while the S&P 500 and other global markets have long since surpassed not only this high but are back to pre-2008 crisis levels.
The major difference between now and April 2010 is the strength in JPY/USD and in the real trade-weighted JPY index. When the Nikkei 225 hit its April 2010 high, JPY/USD was trading around JPY93 and JPY94/USD, or a full JPY10 weaker than where it is trading today (JPY83/USD). While there are expectations for a full-scale weakening of JPY versus USD and perhaps even in real trade-weighted terms, so far these are merely expectations, as JPY/USD is still far away from April 2010 levels even though investor growth expectations have returned to April 2010 levels._
We have emphasized for some time that the two key metrics to watch regarding rallies in Japanese equities are, a) JPY exchange rates and_ b) the spread between US and Japan 10-year bond yields. As a graph of US-Japan long bond rate spreads shows, the Nikkei 225 rally peak in April coincided with a peak in the US-Japan yield spread, as did the JPY/USD exchange rate. However, the US-Japan rate spread has shown a significant recovery since September 2010, the JPY/USD exchange rate is still in the process of re-confirming November 15-year highs. If direction bond yield spreads are right, JPY is being set up for a period of noticeable weakness vs USD, which will drive further gains in Japanese equities. If exchange rates are right, the upside in Japanese equities may be less attractive than foreign investors currently assume.
TJI source
_
January 10, 2011
Despite heavily lagging the rally in the US market and especially the robust Asian markets, the JPY-denominated Nikkei 225 has rallied 19.7% from an August 2010 low of 8,796.45. The Japanese benchmark has seen bullish technical "golden crosses" between its 13-week and 26-week moving averages, as well as its 50-day & 200-day moving averages the bullish technical indicators plus improving trading volume indicate there is some sustainability in this rally. Further, the Nikkei 225 is still some 7.7% below its April 2010 high while the S&P 500 and other global markets have long since surpassed not only this high but are back to pre-2008 crisis levels.
The major difference between now and April 2010 is the strength in JPY/USD and in the real trade-weighted JPY index. When the Nikkei 225 hit its April 2010 high, JPY/USD was trading around JPY93 and JPY94/USD, or a full JPY10 weaker than where it is trading today (JPY83/USD). While there are expectations for a full-scale weakening of JPY versus USD and perhaps even in real trade-weighted terms, so far these are merely expectations, as JPY/USD is still far away from April 2010 levels even though investor growth expectations have returned to April 2010 levels._
We have emphasized for some time that the two key metrics to watch regarding rallies in Japanese equities are, a) JPY exchange rates and_ b) the spread between US and Japan 10-year bond yields. As a graph of US-Japan long bond rate spreads shows, the Nikkei 225 rally peak in April coincided with a peak in the US-Japan yield spread, as did the JPY/USD exchange rate. However, the US-Japan rate spread has shown a significant recovery since September 2010, the JPY/USD exchange rate is still in the process of re-confirming November 15-year highs. If direction bond yield spreads are right, JPY is being set up for a period of noticeable weakness vs USD, which will drive further gains in Japanese equities. If exchange rates are right, the upside in Japanese equities may be less attractive than foreign investors currently assume.
TJI source
_
Joel Krueger thinks pressure remains to the downside for now:
<blockquote>USD/JPY:The market appears to be locked in some consolidation with clear directional boas not easily determined. The latest rally has stalled out by the Ichimoku cloud top to suggest that the pressure still remains on the downside for now. Back below 82.00 should accelerate declines and expose the multi-year lows from 2010 just ahead of 80.00, while back above 83.70 will relieve downside pressures and shift structure back to the topside. </blockquote>
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=3059842">
<blockquote>USD/JPY:The market appears to be locked in some consolidation with clear directional boas not easily determined. The latest rally has stalled out by the Ichimoku cloud top to suggest that the pressure still remains on the downside for now. Back below 82.00 should accelerate declines and expose the multi-year lows from 2010 just ahead of 80.00, while back above 83.70 will relieve downside pressures and shift structure back to the topside. </blockquote>
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=3059842">
Attachments
Quote from Roark:
Joel Krueger thinks pressure remains to the downside for now:
<blockquote>USD/JPY:The market appears to be locked in some consolidation with clear directional boas not easily determined. The latest rally has stalled out by the Ichimoku cloud top to suggest that the pressure still remains on the downside for now. Back below 82.00 should accelerate declines and expose the multi-year lows from 2010 just ahead of 80.00, while back above 83.70 will relieve downside pressures and shift structure back to the topside. </blockquote>
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=3059842">
84.5 is a major line in the sand, whoever is in charge of this Matrix is not letting this zone be taken out. I personally go with Monthly turn of 1995 Low which had been double tagged, not to the pip, nevertheless very close.
Which way will the yen go when the range breaks?
By Jamie Chisholm
<img src=http://media.ft.com/cms/ab27648e-1f34-11e0-8c1c-00144feab49a.gif>
The yen/dollar cross has been stuck in an unusually tight range between Y80.50 and Y84.50 for nearly four months. The longer such stasis continues the greater may be the pop once support or resistance is decisively breached.
So which way will the yen go? With both the Japanese and US units considered âhavenâ currencies, it tends to be perceptions of interest rate differentials and what they say about relative economic growth prospects that do the driving for the pair.
The chart shows how closely the yen has tracked the spread between 10-year Treasuries and JGBs. But that relationship has lost some of its ardour since US yields jumped sharply in December.
Perhaps the dollar buying has not followed because_the move in Treasuries to just below 3.5 per cent is more to do with concerns about the US fiscal position as it is heightened inflation expectations.
Nevertheless, it leaves Fridayâs US consumer prices data with, potentially, the heft to break both the US benchmark yield, and thus the yen/dollar, through the top of their respective ranges, should inflation surprise to the upside.
FT.com
By Jamie Chisholm
<img src=http://media.ft.com/cms/ab27648e-1f34-11e0-8c1c-00144feab49a.gif>
The yen/dollar cross has been stuck in an unusually tight range between Y80.50 and Y84.50 for nearly four months. The longer such stasis continues the greater may be the pop once support or resistance is decisively breached.
So which way will the yen go? With both the Japanese and US units considered âhavenâ currencies, it tends to be perceptions of interest rate differentials and what they say about relative economic growth prospects that do the driving for the pair.
The chart shows how closely the yen has tracked the spread between 10-year Treasuries and JGBs. But that relationship has lost some of its ardour since US yields jumped sharply in December.
Perhaps the dollar buying has not followed because_the move in Treasuries to just below 3.5 per cent is more to do with concerns about the US fiscal position as it is heightened inflation expectations.
Nevertheless, it leaves Fridayâs US consumer prices data with, potentially, the heft to break both the US benchmark yield, and thus the yen/dollar, through the top of their respective ranges, should inflation surprise to the upside.
FT.com
Death Cross on Daily Yen now. Pennant on weekly. Impulse wave breakout very soon.
http://www.dormantrading.com/Trader...e=BAR&a=D&studies=SMA(50);SMA(100);&density=X
http://www.dormantrading.com/Trader...e=BAR&a=D&studies=SMA(50);SMA(100);&density=X
Your chart is upside down. Here's a better one. Price appears to be consolidating. I guess your bias is for JPY to weaken due to all the negative things that have been written about Japan's economy. But what if America's economy is even worse shape? Isn't that what the chart is showing...
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<IMG SRC="http://www.elitetrader.com/vb/attachment.php?s=&postid=3066914">