BIS Nominal and Real Effective Exchange Rates (EER): NEER and REER

Abstract: In this article, we introduce the two effective (i.e. multilateral) exchange rates that measure the value of a specific currency in relation to an average group of major currencies: the Nominal Effective Exchange Rates (NEER) and the Real Effective Exchange Rates (REER). Both are calculated by comparing the relative trade balance of a country’s currency against each country within the index, but the REER is adjusted by the ratio of domestic price to foreign prices.

Using the BIS time-varying weights, we also look and comment the development of the CNY NEER and JPY REER over the past twenty years.

LINK ===> NEER and REER

Japan: Flirting with Helicopter Money

As I already mentioned in a few articles, the Yen strength over the past year was going to be a problem somehow for PM Abe and the BoJ. After reaching a high of 125.86 in the beginning of June last year, USDJPY has entered into a bearish trend since last summer [2015] with the Yen constantly appreciating on the back of disappointments coming from the BoJ (i.e. no more QE expansion). The pair reached a low of 99 post-Brexit, down by 21.3% from peak to trough, sending the equities down below 15,000 (a 30% drawdown from June high of 21,000). The plunge in the stock market was directly reflected in the performance of the Japanese pension and mutual funds; for instance, the USD 1.4 trillion GPIF lost more than USD 50bn for the 12 months through March 2016 (end of the fiscal year). The Fund, as the graph shows below (Source: GPIF) , has been selling its JGBs to the BoJ over the past few years due to Abenomics (the allocation declined from 67.4% in 2011 to 37.8% in 2015) and has mainly been increasing its allocation in domestic and international stocks. With more than USD 13 trillion of sovereign bonds trading at a negative yield – the Japan Yield Curve negative up to 15 years – you clearly understand why I am always saying that Abe and the BoJ cannot lose against the equity market.

GPIF

A the situation was getting even worse post-Brexit, with the Yen about to retest its key 100-level against the US Dollar, the Yen weakness halted suddenly on rumours of potential ‘Helicopter Money’ on the agenda.

It started when Reuters reported that former Fed chairman Bernanke was going to meet PM Abe and BoJ Kuroda in Tokyo to discuss Brexit and BoJ’s current negative interest rate policy. However, market participants started to price in a new move from the BoJ – i.e. Helicopter Money, a term coined by American economist Milton Friedman in 1969. In his paper ‘The Optimum Quantity of Money’, he wrote:

‘Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.’

In short, Helicopter Money is a way of stimulate the economy and generate some inflation by directly transferring money to the nation’s citizens. This money, as a contrary of refinancing operations or QE, will never be reimbursed.

Buy the rumors, sell the fact?

The effect on the currency was immediate, and USDJPY soared from 100 to [almost] 107 in the past 12 years, levitating equities as you can see it on the chart below (SP500 in yellow line overlaid with USDJPY candlesticks). It was confirmed that on the week ending July 15th, the Yen had his biggest drop in the 21st century. The SP500 index reached its all-time high of 2,175 today and in my opinion, the Yen weakness is the best explanation to equities testing new highs in the US.

SPandYen

(Source: Bloomberg)

Talking with Bernanke: Conversations and Rumors

As the meeting was held in private, we don’t have any detail on the conversation. On common sense, you would first think that the discussion would be on the potential BoJ retreat from the market as its figures are starting to be really concerning (35% of JGBs ownership, 55% of the country’s ETF, 85% total-assets-to-GDP ratio). It is clear that the BoJ cannot continue the 80-trillion-yen program forever, and from what we see in Japan [markets or fundamentals], the effectiveness of monetary policy is gone.

However, it looks to me that market participants are convinced that the BoJ will act further, which is to say adopt a new measure. This was clearly reflected in the currency move we saw, and they [better] come with something in the near future if Japan officials don’t want to see a Yen at 95 against the greenback. The next monetary policy meeting is on July 29th, an event to watch.

Introducing Helicopter Money

I run into a series of really nice and interesting articles over the past couple of weeks, and I will first start by introducing this chart from Jefferies that summarizes the different schemes of Helicopter Money very well.

chopper money schematic

I was only aware of the first scheme, where the central bank directly sends money to the households or directly underwrites JGBs. However, as Goldman noted, the second popular scheme would be to convert all the JGBs purchased by the BoJ on the secondary market into zero-coupon perpetual bonds. When you think that a quarter of Japan revenues from tax (and stamps) are used to service debt with the BoJ running out of inventories (i.e. JGBs) to buy, the second scheme makes a lot of sense in fact.

The other part that Goldman covered was on the legal and historical side. As the picture below (Source: Jefferies) shows you, Article 5 of Japan’s Public Finance Law ‘prohibits the BoJ from underwriting any public bonds’. However, under special circumstances, the BoJ may act so within limits approved by a Diet resolution. In other words, the BoJ can underwrite public bonds. The only problem is once Helicopter Money is adopted, it is difficult to stop it. Japan already ‘experienced helicopter money’ in the 1930s after it abandoned the gold standard on December 13th 1931. It first devalued the Yen by 40% in 1932 and 1933, and then engaged in large government deficit spending to stimulate its economy; it was called the Takahashi fiscal expansion (Japan FinMin, Takahashi Korekiyo, also referred as the Japanese ‘Keynes’). As Mark Metzler described in Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan (2006), ‘increased government spending was funded by direct creation of money by the BoJ’.

helicopter primer 2

It was not until 1935 that inflation start rising, and the expansionary policies of Takahashi’s successor after the FinMin assassination in 1936 led the country to a balance of payments crisis and hyper-inflation.

‘Be careful what you wish for’.

In my opinion, as central banks shouldn’t be too focus on the currency, an interesting way of stimulating an economy would be by transferring money directly to citizens’ account. The BoJ could put a maturity date to the money they transfer (i.e. the citizen has one year maximum to spend the money he received), and ‘obliged’ their citizens to spend it on Japanese goods, therefore stimulating the internal demand and eventually leading to a positive feedback loop.

The announcement of additional measures from Japan in the near future should continue to weigh on the Yen, and USDJPY could easily re-reach 110 quite quickly if rumors become more and more real.

Thoughts on Brexit and European Banks

Brexit and Cable 

I remember that two years ago, the same night of the kick-start of the World Cup in Brazil on June 12th 2014 (Brazil won 3-1 against Croatia), Mark Carney gave a speech at the Mansion House giving an update on the BoE’s monetary policy. At that time, he hinted that interest rates may rise sooner than had been expected; and the market was starting to price in a 25bps hike by the end of Q4 2014. Cable was trading at a (almost) 6-year high ($1.72) in a year when the British economy grew at its fastest pace for nine years at 2.8% (and the fastest-growing major economy in 2014 as you can see below).

UKgdp

(Source: Telegraph)

Two years later, the Official Bank rate is still at 0.5%, Cable is down 24% trading at around 1.33 after hitting a low of 1.2798 last week and the market has been positioned for a rate cut since Brexit in order to re-establish confidence in the UK market. While the BoE disappointed today by keeping the benchmark rate steady at 0.5% (only Gertjan Vlieghe voted for a 25bps cut) and no further easing, markets are pricing in a 80%+ chance of a rate-cut later this year with the September and December Short Sterling futures contract trading at 99.63 and 99.67 respectively (meaning that the implied rates are 37bps and 33bps).

Economists have slashed UK outlook and market participants are now expecting the UK economy to enter into a recession by the end of the year, mainly coming from a contraction in business investment and a sharp decrease in property prices. Major UK property funds (Aviva, M&G, Starndard Life, Aberdeen…) have suspended redemptions blaming uncertainty in the property market following Brexit. Therefore, a Summer Stimulus coming from the BoE could partially solve the UK current problematic situation.

The combination of an expected loose monetary policy in addition to poor fundamentals will continue to add pressure on the British pound in the coming months, and Cable could retest new lows toward 1.25.

A contagion in the European Banking system

I mentioned several times that a European Banking Crisis was one of the major Black Swans that could shake the market for a long period of time mainly due to a rise in the Non-Performing Loans (NPLs). For instance, in Italy, it was reported that 17% of banks’ loans are sour, a total of 360bn Euros of NPLs. To give you an idea, it was ‘only’ 5% in the US during 2008-2009. In consequence, Italian banks have been under attack (once again) with Monte Paschi now trading at 34 cents a share; the oldest surviving bank in the world (and Italian third largest lender) once traded at 93 Euros in May 2007, meaning that its market capitalization plummeted 99.6% in less than a decade. The five-year subordinated CDS is now trading at 1,506bps and the September 2020 subordinated bonds are now trading at 75 cents on the dollar. In response, the European Commission authorized Italy to use 150bn Euros of government guarantees to prevent a potential bank ‘run’ on deposits.

Even though the market has become less sensitive to ‘bad’ news coming from either Greece or Portugal, I strongly believe that Italy (or Spain) is one of the ‘scary’ countries to watch. If NPLs continue to rise in those countries, it will push Europe into a great depression and the write downs are going to be painful for all the stakeholders (equity holders, bond holders and depositors).

Another bank that investors have been following for a while now is Deutsche Bank. There is a funny chart (see below) that has been making the headlines which shows the bank’s share price over the past 18 months overlaid with Lehman’s share price before the collapse. The share hit an all-time low at 11.20 last week and lost 90% of its market cap since June 2007 high. Another scary figure is DB’s derivatives exposure of more than 70 trillion dollars, roughly equivalent to the world’s GDP.

DBandLehman

(Source: ZeroHedge)

 I think that European Banking Crisis is a topic that will stay on the table over the next few months, increasing the volatility in global equities and decreasing the effectiveness of the loose monetary policy run by the major central banks (i.e. ECB or BoJ). The Yen tends to appreciate in periods of massive sell off, hurting the main BoJ’s target (cheaper Yen for higher equities).

There are a lot of interesting topics to be discussed at the moment, and my next article will focus on Japan and the introduction of the Helicopter money.

 

 

Only BoJ matters…

Back in September 2014, I wrote an article It is all about CBs where I showed different central banks’ balance sheet as a share of the country’s GDP, which I thought could help explain exchange rates better than some macro models.

As you can see it on the chart below, the Bank of Japan’s balance sheet has been expanding drastically over the past three years and now held a total of 410tr Yen in assets. For an economy of roughly 500tr Yen, the ratio BoJ’s asset – to – GDP stands now at 82% (vs 20 to 30% for central banks).

Chart 1. BoJ Assets (Source: Japan Macro Advisors)

BoJAssets

When you think about it, the BoJ currently holds:

  • 35% of the JGBs (a ratio that is expected to grow to 50% by the end of 2017 – see chart 2).
  • 55% of the country’s ETFs (Chart 3). The BoJ is currently purchasing 3.3tr Yen of ETFs on an annual basis; if it accelerates its program to an annual rate of 7tr Yen, the central bank could become the first shareholder in about 40 of the Nikkei 225’s companies by the end of 2017 according to Bloomberg’s calculations.

Chart 2. BoJ’s JGBs holdings (Source: Japan Macro Advisors)

JGBsHolding

Chart 3. BoJ ETFs holdings (Source: Bloomberg)

ETFsJapan

On January 29th, Kuroda announced that the central bank will adopted negative interest rate policy in order to revive growth (and inflation) in the world’s third-largest economy. Like in the Eurozone (and many countries in the world), the BoJ has been charging a fee to excess reserves that financial institutional place at the central bank over the past three months now. However it doesn’t seem that the results are effective: Japan CPI switched to negative territory in March (-0.1% YoY) and is on the verge on entering into a quintuple recession since the GFC (see chart 4).

Chart 4. Japan’s GDP growth rate (Source: Trading economics)

JapanGDP

It looks like the market was expecting another ‘move’ from the BoJ overnight, and was disappointed by the status quo. The Nikkei index dropped 1000 points to close at 16,666 and sits now on its 50-day SMA, while USDJPY (white line) crashed almost 4 figures to 108, bringing down SP500 futures (blue line) with him to 2075. Therefore, these moves can conclude that for Japan, today, ‘only’ the BoJ matters in terms of news and the best you can do to ‘invest’ is to frontrun what Kuroda is doing.

Chart 5. USDJPY and SP500 futures (Source: Bloomberg)

USDJPYSP500

Some analysts or traders see a buy on dips opportunity at the moment (at around 108), however I would wait ‘til the US opens to decide such a trade. The VIX index (see chart below) has been trending upward over the past few days, which means we could see a couple of volatile days and a fly-to-quality to safe havens such as the Yen (or the Euro as well).

Chart 6. VIX index (Source: Bloomberg)

VIXindex

Macro 1: Japan and Abenomics

I will kick these series of macro updates by an analysis on Japan’s current situation. As you can see it on the chart below, the Nikkei index plummeted 14.50% since December’s high, hitting a low of 16,017 last week (20% drawdown from peak to trough). If we look at the chart below, it seems we entered a bear market in Japan and market participants could still consider the recent spike as quick oversold recovery.

Nikkei

(Source: Bloomberg)

The Yen also reacted to this market headwinds and USDJPY was pushed down to 116 last Wednesday (its August support). One thing that surprises me and captivates me at the same time is the correlation’s strength between all asset classes. For instance, if we look at the chart below shows the moves of Oil (WTI Feb16 contract in yellow) and the SP500 Index (Green line). The amount of pressure that the commodity decline has caused to the overall market is excessive and has put a lot of nations in trouble.

Yen and Rest.jpg

(Source: Bloomberg)

If we have a look at fundamentals, Japan seems to be in a liquidity trap. The BoJ’s balance sheet total asset has surged by 143% [to JPY386tr] since December 2012 and the central bank is currently purchasing 80tr Yen of JGBs every month. It’s has been almost three years that Japan is engaged into a massive stimulus programme, which hasn’t had the expected effect. GDP grew modestly by 0.3% QoQ in the third quarter (avoiding a quintuple-dip recession after a first estimate of -0.2%) and the core inflation rate increased 0.10% YoY in November of 2015, ending a 3-month deflation period but still far from the 2-percent target set by Abe and Kuroda. It is hard to believe that after all the effort (mostly money printing), the situation hasn’t changed much. The question is ‘what would happen if the equity market falls to lower levels and the Yen appreciated further?’ What are Japan’s options?

GDP.png

Inflation

(Source: Trading economics)

I remember one article I read last October from Alhambra Investment Partners, which was talking about the Japanese QE. The chart below reviews all the QEs implemented since the GFC and how the BoJ reacted each time it had a difficult macro situation (i.e. low inflation, stagnating equities, zero-growth…). As you can see, Japan has constantly increase its QE size little by little until Abe was elected In December 2012 and went all-in by starting its QQME stimulus on April 3rd 2013. As Ray Dalio said in many interviews (when he talks about the Fed), the effect of QE diminishes if credit spreads are already close to zero (and asset prices already ‘inflated’), therefore additional measures will constantly be less effective than in the past (‘central banks have the power to tighten, but very little power to ease’). I believe this is exactly where Japan stands at the moment, giving Abe (and Kuroda and Aso) a harsh time.

QEJapan.PNG

(Source: Alhambra Investment Partners)

Another BoJ’s important indicator is the Japanese workers’ real wages, which went back into the negative territory, declining 0.4% YoY in November and marking the first fall since June 2015 according to the Ministry of Finance. Despite PM Abe’s hard work pushing companies to increase wages in order to fuel household consumption, household spending dropped by 2.9% in November and has been contracting most of the months over the past 2 years.

HouseholdSpending.PNG

(Source: Trading economics)

With a debt-to-GDP ratio sitting at 230%, one chart I liked that was published in a Bloomberg post showed the ‘growing dominance’ of the BoJ. The central bank held 30.3% of the country’s sovereign debt (as of September 2015), more than any investor class. For instance, the chart below shows the evolution of the holdings of both the BoJ and Financial Institutions (ex. Insurers); at  the start of the QQME, BoJ holdings were 13.2% vs. 42.4% for Financial Institutions. How long can this story continue?

Holdings.PNG

(Source: Bloomberg)

 

Japan update: Abenomics 2.0

As a sort of casual week end ‘routine’, I was watching the cross assets chart of the main economies that I usually follow. There are so many things that are happening at the moment, however a little update on Japan is always refreshing and useful.

The chart below shows the evolution of the equity market (Nikkei 225 index, Candles) overlaid with USDJPY (green line). As you can see, since Abe came into power in December 2012, there has been a sort of Pavlovian response to the massive monetary stimulus: currency depreciation has led to higher equities. However, the Nikkei 225 index closed at 17,725 on Friday and is down almost 15% from a high of 21,000 reached on August 11, whereas the currency has stabilized at around 120 and has been trading sideways over the past month with an 1-month ATM implied volatility down from 13.2 to 10.6% over the same period. If we look at the 20-day correlation (that I like to watch quite a bit) between the two asset classes, we are down from a high of 89% reached on August 24th to 38.1% in the last observation with an equity market being much more volatile.

EquityandYenC

(Source: Bloomberg)

In article I wrote back in September 2014 entitled The JPY and some overnight developments, I commented a bit on how Japanese Pension Funds (GPIF in my example) were decreasing their bonds allocation and switching to equities. And the questions I ask myself all the time is ‘Can the BoJ (and the other major CBs) lose against the equity market today?’ Indeed, the GPIF, which manages about $1.15 in assets, suffered a 9.4tr Yen loss between July and September according to Nomura Securities.

Abenomics 1.0 update…

We saw lately that Japan printed a negative GDP of 0.3% QoQ in the second quarter of 2015 and is potentially heading for a Quintuple-Dip recession in 7 years. In addition, the economy returned to deflation (for the first time since 2013) if we look at the CPI Nationwide Ex Fresh Food (-0.1% YoY in August, down from 3.4% in May 2014). We know that deflation and recession were both factors that Abe has been trying to fight and avoid, and the question is now ‘What is the next move?’

In a press conference on September 24th, PM Abe announced a sort-of new ‘arrow’ where the plan is to achieve a GDP target of 600 trillion Yen in the coming years (no specific time horizon mentioned as far as I know), which is 20% more from where the economy stands at the moment (JPY 500tr). In addition, he also target to increase the birth rate to 1.8 children per woman from the current low rate of 1.4 in order to make sure that the Japanese population don’t fall below 100 million in 50 years (from approximately 126 million today).

Clearly, this new announcement shows that the three-arrow plan has failed for the moment, and the BoJ only has been the major player in order to inflate prices over the past few years. I am wondering how this new plan is going to work in the middle of the recent EM economic turmoil. My view goes for additional stimulus, another 10 trillion Yen on the table which will bring the QQME program to a total of 90 trillion Yen. If you think about it, the BoJ is currently running a QE program almost as much as big as the Fed’s one in 2013 (85bn USD a month, 1 trillion USD per year) for an economy three times smaller than the US. Deceptions coming from Kuroda (i.e. no additional printing) could strengthen the Yen a little bit, but this will be seen as a new buying opportunities for traders or investors looking at the 135 medium-term retracement (against the US Dollar).

Here are a few figures and ratios to keep in my mind in the medium-term future…

Bank of Japan Total Assets

According to Bloomberg’s BJACTOTL Index, the BoJ’s balance sheet total assets increased by 210tr Yen since December 2012 and now stands at 368tr Yen. With an economy estimated at roughly 500tr Yen, the BoJ-total-assets-to-GDP ratio stands now at 73.6%.

JAPANassetC

(Source: Bloomberg)

Japan Banks total Assets

As of Q1 2015, the Japanese Banks reported a 1,818 trillion Yen exposure, which represents 363% as a share of the country’s GDP.

BanksJapanC

(Source: Bloomberg)

Based on the figures, you clearly understand that Japan’s government has been trying to push savers into stocks so Mrs Watanabe can take part of this artificial asset price inflation. However, a recent study from the Bank of Japan showed that Japanese households still had 52% of their assets in cash and bank deposits as of March 2015 (vs 13% for the American for instance).

The 15-percent recent drawdown in the equity market clearly shows sign of persistent ‘macro tourists’ investors, who are giving Abe and the BoJ board a hard time.

To conclude, the situation is still complicated in Japan, which is hard to believe based on the figures I just showed you. I strongly believe that Abe cannot fail in his plan, therefore if the new arrow needs more stimulus (which it does), we could see another 10 to 15 trillion on the table in the coming months. The medium term key level on USDJPY stands at 135, which brings us back to the high of March 2002.

FX ‘picking’, who is the one to watch?

For the past couple of months, volatility has declined in all asset classes and traders (and algos) have switched to a range trading attitude. If we have a quick overview of the market, we can see that the S&P500 is still fighting against the 2,100 level, the VIX is gradually approaching its crucial 12 level, core bond yields are trading a bit higher (Bund is up 10bps, trading at 16bps) and EURUSD is trading in the middle of its 1.05 – 1.10 range.

However, in a more detailed analysis, we heard some noise lately that trigger a bit of movements in the FX market.

1. SNB talks, first round…

The first one was the CHF move. A few days ago, I posted on my twitter account a chart (see tweet @LFXYvan on April 19) that I thought could be problematic for the Swiss economy (i.e. SNB). At that time, EURCHF was gradually approaching the 1.0250 level, down from 1.08 a couple of months ago (5% appreciation).

Then, a couple of days later, SNB comments sent he Swissy tumbling, with EURCHF and USDCHF up 150 and 200 pips respectively. In its comments, the SNB announced that it reduced the group of sight deposit account holders (bank account through which transfers in the form of cashless payments and cash deposits and withdrawals can be effected) that are exempt from negatives rates, therefore transferring the ‘negative carry’ to its clients and in hope that Sight Deposits are reduced.

Looking at the charts, it seems that it wasn’t enough to force investors to run away from the Swiss Franc and I think we are on the path to retest new lows on EURCHF and USDCHF. With Swissy becoming once again the safe-haven asset since the end of the floor in mid-January, SNB Jordan will have to do more to prevent the exchange rate from appreciating ‘too much’.

2. Cable: will the ‘hawkish’ minutes floor the currency losses ahead of the UK general election?

Yesterday’s BoE minutes trigger a bit of appetite for the pound and sent Cable to a 1-month high of 1.5070. As you can see it on the chart below, the currency is now flirting with its 50-day moving average, an important resistance that could halt the pair’s late bullish trend.

GBP

(source: FXCM)

To be honest, I didn’t understand the sort of positive GBP reaction based on the central bank’s report. If we look at the big lines, the Committee voted unanimously to keep the Official Bank Rate steady at 0.5% (as expected), and in the 23rd section, it says that policymakers were expecting the 12-month CPI rate to fall into the negative territory at ‘some point in the coming months’. It sounds more neutral (if not so, slightly dovish) than hawkish to me.

With the (uncertain) general election coming ahead, I’d rather keep a short position on Cable, especially at current levels. Conservatives should keep a tight stop at 1.5160 for a first target at 1.4750, however I would widen the room there and suggest a stop at 1.5250 (RR of 1.3).

3. Follow the CAD move

Another mover was the CAD, alongside rising prices for oil, which surged by 6 figures to hit a three-month low of 1.2090 on Friday before coming back to 1.22 (against the greenback). With the Western Canadian Select June futures trading at a 11.50 spread against the WTI and higher than expected inflation rate (1.2% YoY in March vs. 1% consensus), the probability of another 25bp cut from the BoC in order to counter a lower growth economic forecast was revised (lower) by the market. It could potentially cap USDCAD on the upside, first resistance is seen at 1.2280, then the second stands at 1.2400. I would be comfortable with a little short position on USDCAD, targeting 1.2180 at first (stop above 1.2360).

CAD

(Source: FXCM)

4. Trade the Yen from a ‘Technicals’ perspective

I will finish this article with the Yen and Japan latest news. We saw earlier this week that Japan Trade Balance saw a tiny JPY3.3bn surplus (vs 409bn deficit expected) after 48 months of trade deficits. Even though it should be considered as good news (for a country which is expected to see a current account deficit for the first time in 34 years), the reason of that tiny surplus was driven by a collapse in imports, that plunged by 14.5% YoY (the most since November 2009). The Good news for Abe (and Kuroda) is that the stock market closed above the 20,000 level this week for the first time in 15 years, making a least one of the arrows – monetary stimulus – work.
As the Yen still remains one of my favorite currencies to watch on a daily basis, I had a lot of conversations with some friends of mine, and we (almost) all agree each time that the BoJ will lose completely control of its currency in the medium/long term. If you look at Japan core figures (debt-to-GDP ratio of 240% according to the IMF, a declining population with more than 25% Japanese aged 65 or over – out of 127ml, massive stimulus as a share of the country’s GDP…), the problem is easily spotted and the biggest ‘opportunity’ will be in the currency market in the medium term.

However, I am more skeptical (i.e. less comfortable) with the short-term trading. Now that the currency has passed its safe-haven status to the Swissy (see tweet @LFXYvan on March 24), I am usually looking for some buy-on-dips opportunities. Being short USDJPY sometimes scares me in the way that I don’t understand how the market interpret good news or bad news in Japan (therefore I always keep a tight stop for short positions).

One thing I am still comfortable in saying that, in an intra-day basis, USDJPY and the equity market (SP500) are still ‘breathing’ together, therefore one of them will ‘carry’ the other.

The wide range on the pair would be 115.50 – 122, but based on today’s volatility I am looking at the 118.30 – 120.80 window. Any breakout of the window could lead to another ‘readjustment’; something I am going to watch closely. If the currency keeps approaching the high of the range, it could be worth going short at 120.60 with a stop above 121.00 and a target at 119.50.

JPY

(Source: FXCM)