Sive Morten
Special Consultant to the FPA
- Messages
- 18,727
Fundamentals
(Reuters) - The dollar rose on Friday after data showed U.S. consumer spending appeared to have regained its mojo in January, supporting the possibility the Federal Reserve will continue to raise interest rates as other central banks ease policy.
The solid U.S. retail sales boosted the dollar against the Japanese yen , which had been the primary beneficiary of global growth fears that have persisted through much of the year.
The dollar had fallen to a 15-month low against the yen and was on track for its biggest weekly decline against the Japanese currency since 2008 after falling four straight days this week.
That was the most the dollar has fallen against the yen in back-to-back weeks since October 1998, when the two-week drop was more than 14 percent.
"We are expecting the dollar to weaken somewhat in the near term before eventually continuing to strengthen more broadly over the medium to long term," said Eric Viloria, currency strategist at Wells Fargo in New York.
Viloria said he expects policy divergence between the Federal Reserve and other central banks that have adopted negative interest rates or are actively easing policy to make the dollar a good long-term bet.
Friday's strong U.S. data backed statements from Fed Chair Janet Yellen and New York Fed President William Dudley this week that suggested the Fed has not changed its thinking on the rate hike program it began in December.
"The theme of policy divergence between the Fed and the rest of the world's central banks is still an intact theme," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Limited in New York.
Japanese Finance Minister Taro Aso said on Friday the government would take necessary steps to deal with currency volatility, the minister's strongest hint of intervention since the yen began its surge this month.
The dollar fell below 111 yen on Thursday to hit its lowest level since October 2014, triggering market speculation that Tokyo could conduct yen-selling intervention to prevent a further yen spike from hurting the export-reliant economy.
We have agreed at G7 and G20 that sudden foreign exchange moves are undesirable," Aso told reporters at a post-cabinet meeting news conference.
"Recent foreign exchange moves have been very rough. I am very nervously watching these moves and will take appropriate steps as necessary."
In response to the question of whether Japan intervened on Thursday, Aso said that is not something that a finance minister comments on.
Japanese Prime Minister Shinzo Abe's policies, known as "Abenomics", rely on a weak yen to push up corporate earnings and to help generate inflation by raising import prices.
Abe has also repeatedly touted the benefits of a rising stock market, which bolsters corporate sentiment and generates positive returns for individual investors.
However, some economists worry that Abe will struggle to come up with ways to stimulate the economy now that stocks and the yen are moving against government policy.
Aso also said he hopes the Group of 20 finance leaders gathering in Shanghai later this month will consider a global policy response in the wake of the recent market turmoil.
A global stock market sell-off and a rising yen threaten to hurt corporate earnings, weaken sentiment and slow inflation, which would undermine the Japanese government's efforts to revitalise the economy and strengthen domestic demand.
"I want to consider if there are ways that the G20 countries can cooperate in response to recent market turmoil," Aso said.
Group of 20 finance ministers will meet at the end of February in Shanghai, China, which holds the rotating presidency of the group, to survey the world's economic outlook with its risks.
There is a lot at stake, because China's economic slowdown, a collapse in oil prices, doubts about the pace of U.S. interest rate hikes and the Bank of Japan's adoption of negative rates have roiled financial markets.
The combination of all these factors has raised concerns that the global economy is much weaker than anticipated, which is driving asset flows from stocks into bonds and into the yen, which are often perceived as a safe-haven assets.
On recent CFTC data we show confirmation of our thoughts that possible "run-to-quality" has started. COT report shows increase of net long position on Yen. As rate of yen has increased - open interest mostly stands the same. It means that shorts that were closed - have been replaced by new longs opened last week. This support bullish sentiment on JPY:
In general, guys, last week nothing has happened that could put the shadow on our understanding on current situation. Events that we've discussed 2 months ago are starting to come true. Particularly - geopolitical situation is very fragile, with a lot of "hot points" around the globe. Not just Middle East, but Ukraine and Europe as well. Global economy becomes weaker and doesn't return back to normal evolution way. Mostly it still stands under pressure of 2008 crisis. Only "free" money from QE was able to push stocks higher but as production level, corporate earnings, consumption still stand unstable and do not improve correspondingly to stock market % growth. Other words speaking - upside action on stocks was mostly artificial within last 1-2 years. Sooner or later this tune should over.
We think that world stands at the edge of drastic changes as in political as economical environment. That's why this does not give a chance that "run-to-quality" should finish any time soon.
Technicals
Monthly
Both targets - 115.40 and 113.50 have been hit within just single week. It means that DRPO "Sell" is done. Action of such large scale could happen only with support global geopolitical or economical factors and demand huge funds flow, as we've discussed above. At the same time it means that big flows of this kind could just finish in a blink of an eye - suddenly and usually they have a tendency to be continued with medium-term or even long-term period.
Fortunately or unfortunately but right now, guys, we can't just be focused on pure technical, market mechanics picture. We have to take in consideration major political events, since they will impact on market sentiment and right now Yen mostly is driven by sentiment. At the same time technical analysis has a feature to coincide or even predict some shifts in global events. We've seen this many times, when we do not know what event will happen but foresee market reaction on this. Last time it was during Paris attack.
So, as you know yesterday, in Munich, major geopolitical players have agreed to stop fire against "Moderate opposition" in Syria from 1st of the March. This agreement has no relation to terrorist organizations as ISIL and others... As boiling process on Middle East will get some relief of steam within nearest 2 weeks - this probably could give some relief to safe-haven assets demand as well. Especially if BoJ will combine geopolitical relief with direct intervention do chill out hot overextended purchases on national currency.
Technical picture relatively confirms this. Market right now stands at upper border of very strong support area. This area includes monthly oversold and K-support around 107-108 area. Although trend is bearish, but market could pass this level as it does not exist only if WW III will start. Definitely BoJ also see this support and this is very good area to hit bears' stops and launch intervention.
At the same time we have to acknowledge that Yen has dropped below YPS1 and this points on existing of new long-term bear trend on this currency pair. Consequently we treat any upside action in short-term perspective only as a bounce, but not as reversal. For reversal it needs to reverse geopolitical situation but hardly it will happen any time soon, especially within 1-2 weeks.
That's being said, monthly analysis leads us to conclusion that upside retracement or at least stabilization is possible in nearest time. Also Yen has rather wide range to do it - 107-110 area to stop dropping and form some reversal pattern. Taking in consideration that market right now stands at 113 - we still could take short-term short positions by patterns whatever will be formed, but our ceil for trading is 107-108 area.
Weekly
Here market has exceeded our most brave expectations and dropped almost to 110 area. Trend is bearish here and I do not have MPP since all of them have been broken down already.
Here we have two major points to discuss. First is H&S pattern. Yen has hit it's minimal destination - AB=CD 114 target but has not stopped here and dropped even lower. It seems that only oversold pressure has stopped market from collapse right to 161.8% target. Taking in consideration all stuff that we've discussed above and the fact that market stands below 100% AB=CD target - this leads us to conclusion that market should continue action to 1.618 extension still, around 108. Hardly big relief on monthly chart will happen before market will complete H&S ultimate target.
Thus, we probably could try to take short positions by some patterns that could be formed during coming week, but we should be extra careful with overbought level and we have to be ready to close position fast is something will go wrong. It needless to say that BoJ intervention will play against us. So pay huge attention to your stop orders.
Finally - take a look at 108 target agrees with monthly K-support and puzzle gets another frame here.
Daily
Our best friend here, guys, is of course bearish thrust. Although we already has some kind of bullish directional pattern on weekly - which is bullish Stretch that theoretically should trigger upside down. Here we could get valuable add-on, since thrust is potential foundation for patterns.
But overall situation is not as simple as it seems. I'm worry that BoJ will try to use this upside market power to increase the intervention impact and safe it's own money. If we wouldn't have BoJ in mind - we probably been watching for some near standing levels, say, 115. But with BoJ in mind, I probably will watch for 116.50-117.50.
There are a lot of arguments that call us to focus on this level. First is massive oversold on all time frames. When market stands deeply oversold on weekly - it easily could trigger retracement right up to daily overbought. This is like shaking the boat - reaction is equal to counter-reaction. Second - with possible geopolitical relief, bearish pressure could become weaker and market will get more freedom with upside action.
Third moment is potential intervention. If it will happen - market will show significant action, definitely to 117 area. And finally - resistance. 116.50-117.50 is very nice resistance level that includes K-resistance, WPR1, former neckline, overbought. Retracement up to WPR1 seems logical in bear trend.
That's being said we will be watching for closer levels as well, but let's focus on this one. Since there are too many reasons stand in favor of it.
Oh, yes... All this speech is on B&B "Sell" of course...
Hourly
Currently guys, we can foresee action only to first Fib level around 115 area and to WPP. This could be done by AB-CD action and butterfly "Sell". But it is very probable that later this action will shift to bigger scale pattern or artificial push will happen from BoJ:
Conclusion
We have bearish view on USD/JPY (bullish on JPY) in long-term perspective. As techincal as fundamental factors show possible further Yen appreciation. The core of our long-term view is investors' disappointment in BoJ efforts to make Yen weaker. This is important also because BoJ has applied all major tools to weaken the Yen. But based on recent reaction this still is not very successful. Additional pressure on Yen comes from geopolitical global situation that makes any BoJ efforts phantom.
At the same time Yen is approaching to strong monthly support around 107-108 area where medium term upside action could happen.
The major task for us is to try take short position in most safe place and escape intervention impact from BoJ, that has big chance to happen on coming week. Don't forget that Monday is President's Day holiday in US...
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.
(Reuters) - The dollar rose on Friday after data showed U.S. consumer spending appeared to have regained its mojo in January, supporting the possibility the Federal Reserve will continue to raise interest rates as other central banks ease policy.
The solid U.S. retail sales boosted the dollar against the Japanese yen , which had been the primary beneficiary of global growth fears that have persisted through much of the year.
The dollar had fallen to a 15-month low against the yen and was on track for its biggest weekly decline against the Japanese currency since 2008 after falling four straight days this week.
That was the most the dollar has fallen against the yen in back-to-back weeks since October 1998, when the two-week drop was more than 14 percent.
"We are expecting the dollar to weaken somewhat in the near term before eventually continuing to strengthen more broadly over the medium to long term," said Eric Viloria, currency strategist at Wells Fargo in New York.
Viloria said he expects policy divergence between the Federal Reserve and other central banks that have adopted negative interest rates or are actively easing policy to make the dollar a good long-term bet.
Friday's strong U.S. data backed statements from Fed Chair Janet Yellen and New York Fed President William Dudley this week that suggested the Fed has not changed its thinking on the rate hike program it began in December.
"The theme of policy divergence between the Fed and the rest of the world's central banks is still an intact theme," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Limited in New York.
Japanese Finance Minister Taro Aso said on Friday the government would take necessary steps to deal with currency volatility, the minister's strongest hint of intervention since the yen began its surge this month.
The dollar fell below 111 yen on Thursday to hit its lowest level since October 2014, triggering market speculation that Tokyo could conduct yen-selling intervention to prevent a further yen spike from hurting the export-reliant economy.
We have agreed at G7 and G20 that sudden foreign exchange moves are undesirable," Aso told reporters at a post-cabinet meeting news conference.
"Recent foreign exchange moves have been very rough. I am very nervously watching these moves and will take appropriate steps as necessary."
In response to the question of whether Japan intervened on Thursday, Aso said that is not something that a finance minister comments on.
Japanese Prime Minister Shinzo Abe's policies, known as "Abenomics", rely on a weak yen to push up corporate earnings and to help generate inflation by raising import prices.
Abe has also repeatedly touted the benefits of a rising stock market, which bolsters corporate sentiment and generates positive returns for individual investors.
However, some economists worry that Abe will struggle to come up with ways to stimulate the economy now that stocks and the yen are moving against government policy.
Aso also said he hopes the Group of 20 finance leaders gathering in Shanghai later this month will consider a global policy response in the wake of the recent market turmoil.
A global stock market sell-off and a rising yen threaten to hurt corporate earnings, weaken sentiment and slow inflation, which would undermine the Japanese government's efforts to revitalise the economy and strengthen domestic demand.
"I want to consider if there are ways that the G20 countries can cooperate in response to recent market turmoil," Aso said.
Group of 20 finance ministers will meet at the end of February in Shanghai, China, which holds the rotating presidency of the group, to survey the world's economic outlook with its risks.
There is a lot at stake, because China's economic slowdown, a collapse in oil prices, doubts about the pace of U.S. interest rate hikes and the Bank of Japan's adoption of negative rates have roiled financial markets.
The combination of all these factors has raised concerns that the global economy is much weaker than anticipated, which is driving asset flows from stocks into bonds and into the yen, which are often perceived as a safe-haven assets.
On recent CFTC data we show confirmation of our thoughts that possible "run-to-quality" has started. COT report shows increase of net long position on Yen. As rate of yen has increased - open interest mostly stands the same. It means that shorts that were closed - have been replaced by new longs opened last week. This support bullish sentiment on JPY:
In general, guys, last week nothing has happened that could put the shadow on our understanding on current situation. Events that we've discussed 2 months ago are starting to come true. Particularly - geopolitical situation is very fragile, with a lot of "hot points" around the globe. Not just Middle East, but Ukraine and Europe as well. Global economy becomes weaker and doesn't return back to normal evolution way. Mostly it still stands under pressure of 2008 crisis. Only "free" money from QE was able to push stocks higher but as production level, corporate earnings, consumption still stand unstable and do not improve correspondingly to stock market % growth. Other words speaking - upside action on stocks was mostly artificial within last 1-2 years. Sooner or later this tune should over.
We think that world stands at the edge of drastic changes as in political as economical environment. That's why this does not give a chance that "run-to-quality" should finish any time soon.
Technicals
Monthly
Both targets - 115.40 and 113.50 have been hit within just single week. It means that DRPO "Sell" is done. Action of such large scale could happen only with support global geopolitical or economical factors and demand huge funds flow, as we've discussed above. At the same time it means that big flows of this kind could just finish in a blink of an eye - suddenly and usually they have a tendency to be continued with medium-term or even long-term period.
Fortunately or unfortunately but right now, guys, we can't just be focused on pure technical, market mechanics picture. We have to take in consideration major political events, since they will impact on market sentiment and right now Yen mostly is driven by sentiment. At the same time technical analysis has a feature to coincide or even predict some shifts in global events. We've seen this many times, when we do not know what event will happen but foresee market reaction on this. Last time it was during Paris attack.
So, as you know yesterday, in Munich, major geopolitical players have agreed to stop fire against "Moderate opposition" in Syria from 1st of the March. This agreement has no relation to terrorist organizations as ISIL and others... As boiling process on Middle East will get some relief of steam within nearest 2 weeks - this probably could give some relief to safe-haven assets demand as well. Especially if BoJ will combine geopolitical relief with direct intervention do chill out hot overextended purchases on national currency.
Technical picture relatively confirms this. Market right now stands at upper border of very strong support area. This area includes monthly oversold and K-support around 107-108 area. Although trend is bearish, but market could pass this level as it does not exist only if WW III will start. Definitely BoJ also see this support and this is very good area to hit bears' stops and launch intervention.
At the same time we have to acknowledge that Yen has dropped below YPS1 and this points on existing of new long-term bear trend on this currency pair. Consequently we treat any upside action in short-term perspective only as a bounce, but not as reversal. For reversal it needs to reverse geopolitical situation but hardly it will happen any time soon, especially within 1-2 weeks.
That's being said, monthly analysis leads us to conclusion that upside retracement or at least stabilization is possible in nearest time. Also Yen has rather wide range to do it - 107-110 area to stop dropping and form some reversal pattern. Taking in consideration that market right now stands at 113 - we still could take short-term short positions by patterns whatever will be formed, but our ceil for trading is 107-108 area.
Weekly
Here market has exceeded our most brave expectations and dropped almost to 110 area. Trend is bearish here and I do not have MPP since all of them have been broken down already.
Here we have two major points to discuss. First is H&S pattern. Yen has hit it's minimal destination - AB=CD 114 target but has not stopped here and dropped even lower. It seems that only oversold pressure has stopped market from collapse right to 161.8% target. Taking in consideration all stuff that we've discussed above and the fact that market stands below 100% AB=CD target - this leads us to conclusion that market should continue action to 1.618 extension still, around 108. Hardly big relief on monthly chart will happen before market will complete H&S ultimate target.
Thus, we probably could try to take short positions by some patterns that could be formed during coming week, but we should be extra careful with overbought level and we have to be ready to close position fast is something will go wrong. It needless to say that BoJ intervention will play against us. So pay huge attention to your stop orders.
Finally - take a look at 108 target agrees with monthly K-support and puzzle gets another frame here.
Daily
Our best friend here, guys, is of course bearish thrust. Although we already has some kind of bullish directional pattern on weekly - which is bullish Stretch that theoretically should trigger upside down. Here we could get valuable add-on, since thrust is potential foundation for patterns.
But overall situation is not as simple as it seems. I'm worry that BoJ will try to use this upside market power to increase the intervention impact and safe it's own money. If we wouldn't have BoJ in mind - we probably been watching for some near standing levels, say, 115. But with BoJ in mind, I probably will watch for 116.50-117.50.
There are a lot of arguments that call us to focus on this level. First is massive oversold on all time frames. When market stands deeply oversold on weekly - it easily could trigger retracement right up to daily overbought. This is like shaking the boat - reaction is equal to counter-reaction. Second - with possible geopolitical relief, bearish pressure could become weaker and market will get more freedom with upside action.
Third moment is potential intervention. If it will happen - market will show significant action, definitely to 117 area. And finally - resistance. 116.50-117.50 is very nice resistance level that includes K-resistance, WPR1, former neckline, overbought. Retracement up to WPR1 seems logical in bear trend.
That's being said we will be watching for closer levels as well, but let's focus on this one. Since there are too many reasons stand in favor of it.
Oh, yes... All this speech is on B&B "Sell" of course...
Hourly
Currently guys, we can foresee action only to first Fib level around 115 area and to WPP. This could be done by AB-CD action and butterfly "Sell". But it is very probable that later this action will shift to bigger scale pattern or artificial push will happen from BoJ:
Conclusion
We have bearish view on USD/JPY (bullish on JPY) in long-term perspective. As techincal as fundamental factors show possible further Yen appreciation. The core of our long-term view is investors' disappointment in BoJ efforts to make Yen weaker. This is important also because BoJ has applied all major tools to weaken the Yen. But based on recent reaction this still is not very successful. Additional pressure on Yen comes from geopolitical global situation that makes any BoJ efforts phantom.
At the same time Yen is approaching to strong monthly support around 107-108 area where medium term upside action could happen.
The major task for us is to try take short position in most safe place and escape intervention impact from BoJ, that has big chance to happen on coming week. Don't forget that Monday is President's Day holiday in US...
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.