Sive Morten
Special Consultant to the FPA
- Messages
- 18,527
Greetings everybody,
as CAD has hit predefined 1.32 target and completed our trading setup for this week, and gold market has dropped due recent Fed statement and is following to our trading plan and 1262 target - right now is more useful to take a look at JPY, because it comes to breakeven point and it will have fare-going consequences.
Fundamentals
JPY mostly is impacted by the same processes as other major currencies. Fed interest rate policy also has pushed yen lower, but there are two another topics that seem to be important. First is N. Korea denuclearisation process and second is US-China tariffs piking. Whether Japan wish or not but it is involved in this process. And it could be hurt twice. First - if Trump will initiate tariffs on Japan exported goods, cars in particular. Second - it could be hurt by China, that is treated Japan as US ally and already said that tariffs initiated will be applied not only against US but Japan as well...
“Investors are worried that with the trade war escalating, today it’s better to sell out... and take profits,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
The outbreak of a global trade war has been the most frequently cited “biggest tail risk” by investors this year in Bank of America Merrill Lynch’s monthly survey of global fund managers, on the back of ramped up protectionist rhetoric and measures by the U.S. administration.
Speaking on China itself - it also starts to feel impact of tariffs turmoil. As Fathom consulting reports - China momentum indicator is slowing down:
We see true economic growth in China continuing to weaken, averaging 5.7% in 2018. Investment only makes sense if there is some other source of aggregate demand that will ultimately mop up all that productive capacity. China needs to develop a source of final domestic demand — not investment but consumption — to absorb the growth in productive capacity to which it is already committed. However, China’s policymakers have not yet enacted the reforms which would be necessary to facilitate this shift.
That's being said, as tariffs journey is just started - it is difficult to suggest where we go on this road, what scale of tariffs piking will be.
"It is hard to say what impact a trade war would have on the dollar in the near term," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"Longer term, if these things escalate into an all-out trade war, which we are not quite there yet, that would certainly be a negative for the U.S. economy," he said.
Demand for safe haven currencies will increase, if tariffs war will escalate. If Japan will not be hardly involved in trade war and not become a member of it - Yen should not hurt much or even could rise. Even now we see some demand for safe haven - US 10 year yield has dropped below 3% again, and yen has stopped rally on Friday as well.
COT Report
Reuters reports that peculators' net short dollar bets rose in the latest week, its second straight week of
increases, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.
The value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $7.42 billion in the week to June 12. That compares with a net short position of $5.54 billion the previous week.
Japanese Yen (Contracts of 12,500,000 yen)
$0.391 billion
12 Jun 2018 Prior week
week
Long 60,609 52,060
Short 55,557 55,497
Net 5,052 -3,437
Technicals
Monthly
Technical picture is more interesting, because yen stands at very important point. Depending on price behavior we will get either strong long-term upside action due Monthly trading plan, or another few weeks of downward action.
As we've mentioned previously , on this time frame we have a pattern of incredible scale, huge reverse H&S is forming here. As it usually happens - left side of H&S is a huge butterfly "Buy". Upside rally from the bottom of the right arm in 2015 was rather fast. Now yen stands in retracement of this upside action that already has started.
Upside targets stand rather far - it could be as AB-CD pattern, based on H&S itself, or butterfly "Sell" pattern, based on right arm. All these targets stand above 130 level and not very interesting for us now. They just show the scale of undergoing processes - as in price as in time.
What is really interesting is when and how market will turn up and when. In fact there are more than single scenario. I would say, that we have at least three of them. First is - immediate upside action and triangle breakout, turning to butterfly pattern. Second - downside action to the lower border of triangle first. Finally, third scenario is triangle downside breakout by large AB=CD with butterfly "Buy" shape of CD leg. In this case potential reversal point will stand around 93.50-94. area...
Price action that we see right now mostly corresponds either to the first or second scenarios.
Weekly
This picture reminds us why current price level is important. Here market will choose from first and second scenarios mentioned above. Immediate upward continuation could mean that long-term bull trend is re-established and market starts long-term journey with monthly H&S.
While downside reversal will postpone this moment and could give us chance to go long at well-prepared level - very important support area, where major upside reversal could start.
102.80 is a strong support cluster on weekly chart. First is, this is lower border of monthly triangle. Second - we have large AB-CD pattern. Once it will be completed - we will get "222" Buy pattern here.
Finally, CD leg of this pattern could take a shape of 3-Drive "Buy", as JPY keeps drive-to-drive extensions of this pattern very sharp.
It means that 103 area, roughly, is the major one to keep an eye on. If, yen will break it down, this will significantly increase chances on further drop, at least to 93-94 level, according to monthly analysis and "222' here could turn to butterfly.
That's being said - we're mostly interested in what will happen in red circle, whether yen will turn down or not.
Daily
Initially, when we just have started discussion of this scenario, we were watching for H&S pattern on daily chart, as market was and is at strong resistance area. Since then, the shape of the chart has changed and it doesn't correspond to H&S any more.
In fact, the only bearish pattern that still could be formed here is "222" Sell. Here I draw classical AB=CD "222" Sell pattern, but legs could be slightly different. Why we do not talk about butterfly "Sell"? Well it is probable too, but butterfly will destroy the harmony of swings on weekly chart. As you can see yen stands at the point where all harmonic swings are completed already. And butterfly will skew this harmony.
So, let's first been watching for "222" Sell. We will keep in mind butterfly as "last hope" for bears here...
Intraday
On 4H time frame market starts to show signs of exhausting of upside action. Price clearly starts to form a wedge shape. If you add MACD here you'll see first signs of bearish divergence as well.
At the same time, there is pretty much room till the final wedge point and we have two bullish grabbers, which suggests some upside continuation above 111 area.
Daily OP target also coincides with weekly PR1. So, it seems that JPY will show some upside continuation on Mon-Tue before downside reversal, which should start somewhere around 111.30.
Upside breakout of previous tops on daily chart will be weaker scenario for bears. In this case, time to "last hope" will come, which is butterfly "Sell". But this upside breakout could mean the failure of overall bearish scenario as well.
Conclusion:
Long-term JPY chart has so big pattern which makes it to be interesting only from theoretical point of view. Now we're mostly focused on process of upside reversal and where it could happen. Currently we have a suggestion that it could be around 103 area. But to make it real - yen indeed has to turn down on coming week.
Opposite price action and breakout of 111.40 top could mean that upside action already has started, without action to 103 first.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
as CAD has hit predefined 1.32 target and completed our trading setup for this week, and gold market has dropped due recent Fed statement and is following to our trading plan and 1262 target - right now is more useful to take a look at JPY, because it comes to breakeven point and it will have fare-going consequences.
Fundamentals
JPY mostly is impacted by the same processes as other major currencies. Fed interest rate policy also has pushed yen lower, but there are two another topics that seem to be important. First is N. Korea denuclearisation process and second is US-China tariffs piking. Whether Japan wish or not but it is involved in this process. And it could be hurt twice. First - if Trump will initiate tariffs on Japan exported goods, cars in particular. Second - it could be hurt by China, that is treated Japan as US ally and already said that tariffs initiated will be applied not only against US but Japan as well...
“Investors are worried that with the trade war escalating, today it’s better to sell out... and take profits,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
The outbreak of a global trade war has been the most frequently cited “biggest tail risk” by investors this year in Bank of America Merrill Lynch’s monthly survey of global fund managers, on the back of ramped up protectionist rhetoric and measures by the U.S. administration.
Speaking on China itself - it also starts to feel impact of tariffs turmoil. As Fathom consulting reports - China momentum indicator is slowing down:
We see true economic growth in China continuing to weaken, averaging 5.7% in 2018. Investment only makes sense if there is some other source of aggregate demand that will ultimately mop up all that productive capacity. China needs to develop a source of final domestic demand — not investment but consumption — to absorb the growth in productive capacity to which it is already committed. However, China’s policymakers have not yet enacted the reforms which would be necessary to facilitate this shift.
That's being said, as tariffs journey is just started - it is difficult to suggest where we go on this road, what scale of tariffs piking will be.
"It is hard to say what impact a trade war would have on the dollar in the near term," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"Longer term, if these things escalate into an all-out trade war, which we are not quite there yet, that would certainly be a negative for the U.S. economy," he said.
Demand for safe haven currencies will increase, if tariffs war will escalate. If Japan will not be hardly involved in trade war and not become a member of it - Yen should not hurt much or even could rise. Even now we see some demand for safe haven - US 10 year yield has dropped below 3% again, and yen has stopped rally on Friday as well.
COT Report
Reuters reports that peculators' net short dollar bets rose in the latest week, its second straight week of
increases, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.
The value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $7.42 billion in the week to June 12. That compares with a net short position of $5.54 billion the previous week.
Japanese Yen (Contracts of 12,500,000 yen)
$0.391 billion
12 Jun 2018 Prior week
week
Long 60,609 52,060
Short 55,557 55,497
Net 5,052 -3,437
Technicals
Monthly
Technical picture is more interesting, because yen stands at very important point. Depending on price behavior we will get either strong long-term upside action due Monthly trading plan, or another few weeks of downward action.
As we've mentioned previously , on this time frame we have a pattern of incredible scale, huge reverse H&S is forming here. As it usually happens - left side of H&S is a huge butterfly "Buy". Upside rally from the bottom of the right arm in 2015 was rather fast. Now yen stands in retracement of this upside action that already has started.
Upside targets stand rather far - it could be as AB-CD pattern, based on H&S itself, or butterfly "Sell" pattern, based on right arm. All these targets stand above 130 level and not very interesting for us now. They just show the scale of undergoing processes - as in price as in time.
What is really interesting is when and how market will turn up and when. In fact there are more than single scenario. I would say, that we have at least three of them. First is - immediate upside action and triangle breakout, turning to butterfly pattern. Second - downside action to the lower border of triangle first. Finally, third scenario is triangle downside breakout by large AB=CD with butterfly "Buy" shape of CD leg. In this case potential reversal point will stand around 93.50-94. area...
Price action that we see right now mostly corresponds either to the first or second scenarios.
Weekly
This picture reminds us why current price level is important. Here market will choose from first and second scenarios mentioned above. Immediate upward continuation could mean that long-term bull trend is re-established and market starts long-term journey with monthly H&S.
While downside reversal will postpone this moment and could give us chance to go long at well-prepared level - very important support area, where major upside reversal could start.
102.80 is a strong support cluster on weekly chart. First is, this is lower border of monthly triangle. Second - we have large AB-CD pattern. Once it will be completed - we will get "222" Buy pattern here.
Finally, CD leg of this pattern could take a shape of 3-Drive "Buy", as JPY keeps drive-to-drive extensions of this pattern very sharp.
It means that 103 area, roughly, is the major one to keep an eye on. If, yen will break it down, this will significantly increase chances on further drop, at least to 93-94 level, according to monthly analysis and "222' here could turn to butterfly.
That's being said - we're mostly interested in what will happen in red circle, whether yen will turn down or not.
Daily
Initially, when we just have started discussion of this scenario, we were watching for H&S pattern on daily chart, as market was and is at strong resistance area. Since then, the shape of the chart has changed and it doesn't correspond to H&S any more.
In fact, the only bearish pattern that still could be formed here is "222" Sell. Here I draw classical AB=CD "222" Sell pattern, but legs could be slightly different. Why we do not talk about butterfly "Sell"? Well it is probable too, but butterfly will destroy the harmony of swings on weekly chart. As you can see yen stands at the point where all harmonic swings are completed already. And butterfly will skew this harmony.
So, let's first been watching for "222" Sell. We will keep in mind butterfly as "last hope" for bears here...
Intraday
On 4H time frame market starts to show signs of exhausting of upside action. Price clearly starts to form a wedge shape. If you add MACD here you'll see first signs of bearish divergence as well.
At the same time, there is pretty much room till the final wedge point and we have two bullish grabbers, which suggests some upside continuation above 111 area.
Daily OP target also coincides with weekly PR1. So, it seems that JPY will show some upside continuation on Mon-Tue before downside reversal, which should start somewhere around 111.30.
Upside breakout of previous tops on daily chart will be weaker scenario for bears. In this case, time to "last hope" will come, which is butterfly "Sell". But this upside breakout could mean the failure of overall bearish scenario as well.
Conclusion:
Long-term JPY chart has so big pattern which makes it to be interesting only from theoretical point of view. Now we're mostly focused on process of upside reversal and where it could happen. Currently we have a suggestion that it could be around 103 area. But to make it real - yen indeed has to turn down on coming week.
Opposite price action and breakout of 111.40 top could mean that upside action already has started, without action to 103 first.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.