(% performance since September 30th till time of writing)
Even going slightly further back, for the second half of this year so far, the kiwi only has declines against FX safe havens such as the US dollar, Swiss Franc, Singapore dollar, and the Hong Kong dollar (HKD is pegged to USD).
What’s Driving NZD’s Outperformance of Late?
Markets are forecasting a 64% chance that the RBNZ will trigger a 75-basis point hike this week.
If so, that which would be the RBNZ’s largest ever hike since its official cash rate was rolled out in 1999!
And a record hike would only add to cumulative hikes by this central bank, having already raised its official cash rate by 325 basis points (bps) since October 2021, including 50-basis points at each of its past five meetings.
Generally speaking, the higher interest rates go in an economy relative to its peers, the stronger its currency.
Why Would the RBNZ Need to Trigger a Record Hike?
A larger 75bps hike may be needed to keep consumer prices from rising uncontrollably.
Note that a central bank’s main weapon against runaway consumer prices is by raising interest rates to “destroy” demand in the economy.
That 7.2% figure was above the median forecast of 6.5%, with the former number being near its highest levels since 1990!
And that’s even with all of the RBNZ’s hikes that have been incurred over the past year which apparently are having little impact on the inflation scourge so far.
Hence, NZD has been lifted on the wings of expectations that the RBNZ may well send its benchmark rates higher than previously anticipated.
Markets are now forecasting that New Zealand’s interest rates will keep rising from the 3.5% level at present before peaking around 5.15% by mid-2023.
And this has been an opportune time for NZD bulls to take advantage of the US dollar’s pullback, with markets expecting that the Fed is getting closer to being down with its own US rate hikes.
But if the RBNZ actually opts for a 50-bps hike this week instead, that may disappoint NZD bulls who had been hoping for that larger 75bps hike, potentially prompting them to unwind some of NZD’s recent gains.
Can NZD/USD Reach 200-day SMA?
At present, markets are forecasting only a 16% chance of NZDUSD the 0.63 mark, around where the kiwi’s (nickname for NZDUSD) 200-day simple moving average currently lies.
After all, Kiwi bulls (those hoping NZDUSD can climb higher) are already encountering resistance around the 0.62 psychological area, which has been a key battle region between bulls and bears since May.
Looking at a key technical indicator, NZDUSD’s 14-day relative strength index (RSI) is also pulling back from the 70 threshold which typically denotes overbought conditions, suggesting that the NZD’s ascent has gone too far.
To the downside lies its 100-day SMA, just above the 0.60 mark, which may offer underlying support should the RBNZ disappoint this week or if the US dollar’s catches fresh safe haven bids.
Markets are currently forecasting a 41% chance of 0.60 being attained by Kiwi bears for the next one-week period.
To recap, NZDUSD’s performance this week may all come down to the following key events:
the size of the RBNZ’s actual cash rate hike
RBNZ’s outlook for the cash rate going into 2023
Fed meeting minutes released on Wednesday/scheduled speeches by Fed officials this week
And on that final point above, let’s take a brief look at the USD half of NZDUSD.
Noting that this week is absent of tier-1 US economic data, the US dollar could react to fresh policy clues out of the FOMC meeting minutes and the Fed speakers due before the Thanksgiving break.
Should the US dollar relinquish its gains at the onset of this week, on renewed hopes that the Fed is closer to being down with its own rate hikes, that could make NZDUSD’s path towards its 200-day SMA a lot easier.
British Pound vs Japanese Yen Weekly Technical Analysis
The British pound has collapsed during the week, especially during Friday as we have seen massive moves in the bond markets. As a general rule, I believe that the market is probably going to have to see the occasional bounce, but it looks like it may have further to go. Regardless, if I were to start buying the yen related pairs, in other words if I were to start shorting yen, I would not do it here. I believe that the British pound is so sick at the moment that you cannot trust it.
If the Japanese yen suddenly starts to pick up a lot of momentum, perhaps in some type of safety bid, this pair is going to be absolutely eviscerated. At that point, my positions will be as follows: short GBP/JPY, short NZD/JPY, short AUD/JPY, and short ZAR/JPY. The Japanese yen is oversold by most accounts, but the Bank of Japan continues to fight interest rate so that is the real problem. I do think that we are more likely than not going to continue to see a lot of ugliness, so I think this is a pair worth watching.
Do not forget there is a bit of a “risk on/risk off” type of attitude to be had in this pair, so that is also a component that must be paid close attention to. Currently, we are most decidedly “risk off”, which of course favors the Japanese yen under normal circumstances. The question now is whether or not the Bank of Japan is going to continue to support its own currency, because if it does we could go back to the old correlations.
NZDJPY turned sharply and impulsively down from the highs and we are tracking an Elliott wave minimum three-wave A/1-B/2-C/3 decline, where higher degree wave C/3 could be already in play after a completed Elliott wave three-wave (A)-(B)-(C) corrective setback in wave B/2.
Waves C and 3 are impulsive waves which should be completed by a five-wave cycle of the lower degree. We can actually clearly see an Elliott wave intraday bearish setup formation with five waves of decline away from 85.40 level that can easily send the price even lower, just be aware of short-term Elliott wave intraday corrective pullbacks.
The Yen also has a year-to-date decline against all its major Asian counterparts as well.
So why is the Yen so weak?
The main reason is because of monetary policy divergence.
Let’s break it down.
Firstly, monetary policy is the way a central bank achieves its goals for the economy (e.g. maximum employment, stable prices, etc.), using tools like interest rates, money supply, and even currency levels.
And where’s the divergence?
The Bank of Japan is still using its monetary policy to support its economy.
This is in stark contrast to what most other central banks around the world are doing = pulling back that support. They do this by raising interest rates/easing back on bond purchases.
The goal of such policy-tightening (not what the BOJ is doing) is to reduce money supply and demand levels in an economy = less money chasing after scarce goods = to lower consumer prices/inflation.
Monetary policy: Comfort food vs. a regular diet
Consider when a child is feeling down, his/her parents may have no qualms treating the child to some ice cream, candy, or chocolate bars.
Such sweet indulgences are meant to make the child feel better in a jiffy, but is (hopefully) just a short-term fix and also (again, hopefully) far different from the regular diet the child consumes as part of the daily routine.
Similarly, when the economy was suffering during the pandemic, central banks rolled out record-low interest rates and printed money out of thin air to keep financial markets supported.
Low interest rates = cheaper for households/businesses to borrow money = they have money to spend in the economy = the economy gets better
But now that economies are recovering and even posting red-hot inflation numbers, it no longer needs record-low interest rates and unlimited bond purchases
Hence, central banks are returning to their economy’s “regular diet” by tightening policy = paring down bond purchases/reducing the supply of money in the economy/raising interest rates.
Who’s already hiking rates?
Within the G10 space alone:
Bank of New Zealand – raised its benchmark rate by 125 basis points (1.25%) since Q3 2021
Bank of Canada – raised its benchmark rate by 75 basis points so far this year
Bank of England – raised its benchmark rate by 65 basis points since December
US Federal Reserve – raised rates by 25 basis points in March, perhaps another 50-basis point hike in May
But not so the Bank of Japan.
It’s keeping Japan’s benchmark interest rate at a record low of negative 0.1%, while buying up even more bonds.
Hence, the divergence in monetary policy.
How is policy divergence playing out in markets?
This divergence is evident in the widening gap in yields between Japanese bonds and its global counterparts.
Firstly, what are yields?
Yields are a way to measure how much money you could earn on an investment over a set period of time.
In the case for bonds, it’s calculated in terms of how much interest one would get paid if they held on to that bond till it matures/reaches the end of its tenure.
For context, bond yields have been climbing around the world.
This is because investors are selling off bonds in tandem with central banks that are reducing their balance sheets.
And when bond prices drop, their yields rise.
Here are the benchmark 10-year yields for these other countries (at the time of writing):
US = 2.88%
Canada = 2.87%
China = 2.82%
UK = 1.95%
Germany = 0.89%
Contrast the numbers above with Japan’s 10-year yields, which are capped at 0.25%.
As a policy, the Bank of Japan is buying even more bonds to keep bond prices elevated and limit its benchmark 10-year yields to no higher than 0.25% (this process is also known as “yield curve control”).
The goal for capping those yields is to keep borrowing costs low in Japan so that households/businesses can still borrow to stimulate the economy.
Government bond yields are often used as the benchmark by which other banks/financial institutions calculate the interest to charge the customers who borrow money.
Here are two charts that show how the widening gap/spread between US benchmark yields vs. Japan’s benchmark yields (10-year government bonds) correspond with the USDJPY’s performance:
See how those two lines are moving in sync with one another?
In essence, the wider the gap between US and Japan’s yields, the higher USDJPY goes (the weaker the Japanese Yen against the US dollar).
How are Japan’s capped yields affecting the yen?
The lower yields on offer in Japan suggests that investors would get more bang for their buck by buying bonds in other countries that are now posting higher yields (again, yields in this case are a measure of how much one could earn from investing in that particular bond).
At risk of oversimplifying matters:
Less demand for Japanese assets = less demand for the Japanese yen.
And when there’s lower demand = prices fall (all else equal).
Hence, the Yen has been falling as investors shun Japanese bonds.
From a fundamental perspective, markets are getting the sense that the Japanese economy is still too fragile – or at least the Bank of Japan thinks so of its own economy – and is nowhere near strong enough to be able to do without the ‘comfort food’ from the central bank.
But of course all that could change, as the BOJ faces increasing pressure to follow suit with other central banks in tightening policy … or perhaps even just to stem the Yen’s weakness.
Which brings us to the final question to ponder upon for this article …
Will the Yen eventually rebound?
As a market cliche goes … nothing lasts forever.
So yes, theoretically the Yen could eventually rebound.
But one of two things may need to happen first:
1) The Bank of Japan has to signal that its willing to abandon its ultra-loose monetary policies.
Policymakers need to be convicted that Japan’s economic recovery is sustainable, and that inflation is being fuelled by robust demand (a.k.a. demand-pull inflation) as opposed to cost-push inflation.
To be clear, this seems unlikely for a while more, at least through the end of 2022.
Still, look out for the Bank of Japan policy meeting next week (April 28th).
The slightest clue that the BOJ is ready to tweak its policy stance could trigger a big move in the Yen.
2) Policymakers intervene to curb Yen weakness
This has been done before, but not for quite some time.
The last time the Japanse government propped up the yen was back in 1998, when USDJPY traded above 140 and peaked at 147.66 in September 1998.
However, back in 2002 even when USDJPY surpassed 135, the government sat on its hands and didn’t intervene.
So it remains to be seen at what level Japanese policymakers will tolerate before trying to stop the Yen from weakening further.
Keep in mind that a drastically-weaker Yen causes its own problems for the economy.
Japan is a net importer of energy, which are widely denominated in US dollars. The weaker Yen forces Japan to spend more of its currency to buy the same amount of fuel, not to mention the other imported goods (e.g. food) and services that it now has to spend more money on. If the imported costs become too great and weigh on businesses/households, then the Japanese government may be forced to pay for subsidies to ease the pain.
That’s money out of the Japanese government’s pocket that could be spent on other things.
So until either of the above scenarios happen, shorting the Yen has remained a popular bet.
Last week, asset managers raised their short bets on the Yen to the most ever on record, according to CFTC data.
Overall, as long as this policy and yields divergence continues to play out between Japan and other major economies, that’s likely to keep the Yen on its weakening path for longer.
That is, unless the BOJ or Japan’s Finance Ministry switches tact and, in intervening to halt the Yen’s weakness, might do so while singing lines from Eminem’s monster hit from 2002 …
“Now this looks like a job for me
So everybody, just follow me
‘Cause we need a little, controversy
‘Cause it feels so empty, without me”
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The price is bullish. However, the pair is retracing and we could estimate the end of a retracement currently around the M L3 camarilla pivot -80.29. However, the JPY is getting strong and this could be only due to the ADP and NFP this week. Positioning is done at important s/r levels prior to the NFP as all JPY and USD markets will be affected. If the daily shows a reversal pattern at the bottom, look for buying the dip. Targets are 81.20 followed by 82.20 and 83.63.
The 25 basis point rate hike marks the start of a tightening cycle that had been expected to begin in August, but was delayed after an outbreak of the coronavirus Delta variant and a lockdown that is continuing in its biggest city Auckland.
The increase in the cash rate to 0.50% by the Reserve Bank of New Zealand (RBNZ) had been forecast by all 20 economists polled by Reuters.
The New Zealand dollar briefly rose after the announcement but fell back to $0.6930, in line with broader market moves.
“It was pretty much in line with what everyone was picking,” said Jason Wong, senior market strategist at BNZ in Wellington. “We’re on a path towards a series of rate hikes and the market is well priced for that.”
Announcing its decision, the RBNZ said further removal of monetary policy stimulus was expected, with future moves depending on the medium-term outlook for inflation and employment.
The rate hike puts New Zealand ahead of most other developed economy nations as central banks look to wind back emergency-level borrowing costs, although countries including Norway, the Czech Republic and South Korea have already raised rates.
In neighbouring Australia, the central bank held interest rates at a record low 0.1% for an 11th straight month on Tuesday.
Economists expect the benchmark rate to reach 1.50% by the end of next year and 1.75% by the end of 2023, the Reuters poll showed.
The South Pacific nation has enjoyed a rapid economic recovery since a COVID-driven recession last year, partly because it eliminated coronavirus and reopened its economy before others.
But with its borders still shut, labour and goods shortages are pushing up inflation, as well as contributing to a surging property market, which has been driven by ultra-low interest rates.
“Demand shortfalls are less of an issue than the economy hitting capacity constraints…,” the RBNZ Committee noted in the minutes of the meeting.
The central bank said headline CPI inflation is expected to increase above 4% in the near-term but return towards its 2% midpoint over the medium term.
Recent COVID-19 restrictions have not materially changed the medium-term outlook for inflation and employment, and economic activity will recover quickly when the measures are eased, it added.
But economists said the RBNZ may not race ahead with its hiking cycle in view of the current global uncertainty and the Delta variant outbreak dragging on in Auckland.
“(We) remain of the view that further rate hikes will be in 25 basis point increments rather than 50 basis point moves,” said Citibank economist Josh Williamson.
New Zealand abandoned its strategy of eliminating COVID-19 this week, with the government saying it will have to live with the virus and step up vaccination rates to control it.
In August, a central bank official confirmed it had also considered a 50-basis-point move that month, before taking a rate hike off the table altogether due to the lockdown.
The NZDUSD is in a false bearish breakout from the falling wedge pattern. That is possibly a very nice buying opportunity.
The GBPNZD is testing the combination of three important dynamic supports. A breakout can be an amazing sell signal.
The EURJPY broke the upper line of the wedge and is aiming higher with a buy signal.
The GBPCAD is in a giant symmetric triangle on the weekly chart. We will probably have to wait a long time till until the breakout but it will most probably be worth it.
The NZDJPY is in a flag formation. A breakout of its upper line will bring the positive sentiment back.
The GBPJPY is forming a head and shoulders pattern inside of the symmetric triangle pattern. A breakout of the lower line (and the neckline at the same time) can be a good bearish signal and a breakout to the upside can be a signal to go long.
The US dollar has rallied during the course of the trading session on Friday, breaking above the 50 day EMA and of course the psychologically important ¥110 level. That is an area that of course is an important area that we have seen tested multiple times in both directions. The market has a significant amount of resistance just above here at the ¥110.75 level, so whether or not we can break above there is a completely different question, and quite frankly would not be surprised at all to see that area fail. Furthermore, if you look at this chart you can make a little bit of an argument for a descending channel as of late.
USD/JPY Video 09.08.21
If we do turn around a break down below the 50 day EMA, then I think we will start granting down towards the 200 day EMA underneath, which is currently sitting at the ¥108.50 level. After all, the area of about one handle above or we are right now significant resistance that extends all the way to the ¥112 level. It is a longer-term area to worry about, so it makes quite a bit of sense that it would take a massive amount of effort to get through. With that being the case, I think it is only a matter of time before we roll over.
That being said, if the pair does tend to go higher over the longer term, I do not necessarily know that I would be a buyer of this one, but I might be convinced to buy pairs with a bit more alpha, speaking specifically of the GBP/JPY pair, AUD/JPY pair, and the NZD/JPY pair.
There’s an excellent long-term setup on the CHFJPY, where we are finishing a bearish correction. The price is bouncing from the combination of a horizontal and dynamic support and everything seems ready for another bullish wave.
The AUDNZD is in a short-term sideways movement but with a long-term negative outlook.
The NZDCHF is in a perfect flag formation. For the buy signal, we need to see the breakout of the upper line of this pattern.
The NZDJPY is in a similar situation but here we additionally have a bounce from the horizontal support. The sentiment is positive.
Silver uses every chance to go lower. Currently, we are testing the long-term support of a symmetric triangle. The outlook is rather negative.
The dollar Index broke the neckline of the giant inverted Head and Shoulders pattern and yesterday it defended it as a support with a hammer candle. That is definitely a positive and optimistic sign for buyers.
The Reserve Bank of New Zealand (RBNZ) kept its official cash rate at 0.25% but cut short a NZ$100 billion ($70 billion) bond buying programme, prompting local banks to bring forward calls for a rate rise to as early as August, which would put New Zealand at the forefront of countries to raise interest rates.
“The RBNZ has absolutely done enough hand-waving today to tick the ‘market-prep’ box for an August hike, with CPI and labour market data set to do the rest,” said Sharon Zollner, Chief Economist at ANZ Bank.
The move comes amid nagging inflation worries globally, with U.S. inflation data rising by the most in 13 years in June, adding to uncertainty about whether such inflationary pressures are transitory.
New Zealand’s pandemic-free economy has been growing on the back of a housing boom and strong retail spending, raising concerns that it may get overheated pushing inflation above the bank’s target and squeeze the labour market.
First quarter GDP swept past forecasts, rising 1.6%. A survey last week showed the business outlook was now better than pre-COVID levels, and hiring constraints and inflationary pressures were starting to bite.
The RBNZ noted that in the absence of further economic shocks, consumer price inflation pressure is expected to build over time due to rising domestic capacity pressures and growing labour shortages.
“Members agreed that the major downside risks of deflation and high unemployment have receded,” the RBNZ said in minutes of the meeting.
“The (Monetary Policy) Committee agreed that a ‘least regrets’ policy now implied that the significant level of monetary support in place since mid-2020 could be reduced sooner.”
CHANGE OF TACK
A rate hike this year would make New Zealand the first developed economy to kick off policy tightening. The Reserve Bank of Australia said earlier this month that it did not expect a rate rise before 2024.
The New Zealand dollar rose 1.1% after the announcement to $0.7017. Yields on two-year bonds surged 9 basis points to its high for this year at 1.668%.
“The RBNZ has clearly changed tack to decide that the time for reducing monetary stimulus is very near. The risk of inflation and employment undershooting the objectives has switched to the risk of overshooting should the current level of stimulus remain in place,” said Nick Tuffley, Chief Economist at ASB Bank.
The RBNZ slashed its interest rate to record lows in March last year and pumped billions of dollars in stimulus as the COVID-19 pandemic raged through the country and the globe.
New Zealand, however, managed to contain the spread of the virus, with the last community case of COVID-19 reported in February, allowing the economy to bounce back faster than most others.
At its meeting in May, the RBNZ had hinted at a hike in September 2022.
But the central bank is likely to maintain its view the world’s third-largest economy is headed for a moderate recovery as robust exports and output offset some of the weakness in consumer demand, said four sources familiar with its thinking.
The expected downgrade highlights Japan’s struggle to contain the COVID-19 pandemic, as slow vaccine rollouts and a resurgence in infections force authorities to declare a state of emergency for Tokyo just 16 days before the Olympic Games begin.
“The foundations of a recovery are in place, but the timing may be delayed somewhat,” as the curbs weigh on the economy’s expected rebound in the current quarter, one of the sources said, a view echoed by three other sources.
In most recent forecasts made in April, the BOJ expected the economy to expand 4.0% in the current fiscal year ending in March 2022, higher than a 3.6% growth projected in a Reuters poll.
At its July 15-16 policy meeting, the BOJ will likely cut the current year’s growth forecast in fresh quarterly and inflation projections, the sources said. It is also widely expected to keep monetary settings unchanged.
In the new estimates, the BOJ will likely revise up this fiscal year’s consumer inflation forecast mainly reflecting the boost from recent rises in energy costs, the sources said.
The growth projections for next fiscal year ending in March 2023 will depend much on when households begin to feel safe enough to boost spending on leisure and travel, analysts say.
The central bank currently expects the economy to expand 2.4% next fiscal year and 1.3% the following year.
The BOJ estimates that households have 20 trillion yen ($182 billion) in “forced” savings accumulated last year due to stay-at-home policies, which could be tapped when vaccines are rolled out widely.
Japan’s economy shrank an annualised 3.9% in January-March and likely barely grew in the second quarter, as the pandemic took a toll on service spending.
Analysts and policymakers had expected the economy to enjoy a solid rebound in the latter half of this fiscal year, in part hoping that steady vaccinations and removal of curbs would spur pent-up demand for leisure and travel.
The US dollar rallied significantly during the course of the trading session on Thursday to test the top of the shooting star from the previous session, suggesting that we are going to try to break above it. If we do, that would be an extraordinarily bullish sign, and could send this market towards the ¥110 level again. This is probably not about the US dollar, but more or less about the Japanese yen as it is getting hammered by several different currencies right now.
USD/JPY Video 30.04.21
The 50 day EMA is currently offering support, and it does look like the market is respecting that. Furthermore, the 38.2% Fibonacci retracement level has offered support, and we did form a couple of hammers in that general area. That being the case, I think that the uptrend can continue, but if we were to break down below this hammers, that could open up a move down to the 200 day EMA.
Ultimately, I think that the Japanese yen is a currency that is going to be in trouble going forward, due to the lack of yield coming from the bond market. With this being the case, I do look to buy the dip in not only this pair but multiple other ones like the AUD/JPY, NZD/JPY, and even the lowly CHF/JPY pairs. With this being the case, I think that we have much further to go, and, in this pair, I suspect that ¥110 will be the next target if we can break above that shooting star.
GBP/USD last week fell 236 pips from 1.4015 to 1.3776 while overbought GBP/JPY rose 257 pips from 148.14 to 150.71.
Known since the 1930’s, the Japanese pegged GBP/JPY to UK Gold for not only economic viability but the first incursion to the western world of finance. The standard to hold GBP/JPY to the UK held throughout Bretton Woods. Upon the 1972 free float, GBP/JPY became attached permanently with high +90% correlations to GBP/USD.
All JPY cross pairs followed with high and positive correlations as AUD/USD and AUD/JPY, NZD/USD and NZD/JPY, EUR/USD and EUR/JPY while USD/CAD and CAD/JPY became polar opposites as both permanently correlate negatively. USD/CHF and CHF/JPY traditionally also hold opposite correlations.
The Japanese offered not only a double trade but GBP/JPY and GBP/USD as the same exact currency pairs. The same principle holds true for EUR/JPY and EUR/USD, AUD/USD and AUD/JPY and NZD/USD and NZD/JPY. The double trade is permanent for USD/CAD and CAD/JPY.
Why JPY cross pairs remain overbought into week 6 amd not falling with counterpart currencies is the USD/JPY problem to correlations. While GBP/USD correctly correlates to GBP/JPY at +94%, GBP/JPY also not correctly correlates to USD/JPY at +83%. A further problem exists as GBP/USD correlates to USD/JPY at +46 %. All correlations are not only running positive but this situation is the exact same for AUD/JPY, NZD/JPY, EUR/JPY, CAD/JPY and explains why prices remain high and overbought.
Positive correlations are the result of exchange rate prices and relationships to moving averages since correlations are found within the context of averages. USD/JPY trades above vital 105.70, GBP/USD above 1.3697 and GBP/JPY above 144.80. Correlations are positive because prices trade above respective high / low averages.
Required to assist GBP/JPY to drop is GBP/USD breaks 1.3697 or USD/JPY trades below 105.70. GBP/JPY then decides to fully correlate to USD/JPY or GBP/USD. GBP/JPY in every instant follows GBP/USD as the 91 year correlation and order of currency markets.
Current GBP/JPY trades 1156 pips above GBP/USD and 2506 pips below GBP/CAD. GBP/JPY larger range from GBP/USD becomes 144.08 and 1.5564. GBP/JPY above is located the 14 year average at 155.38 and the 10 year at 148.36.
Prior to the 2016 interest rate changes by the central banks, the market order to currency pair arrangement existed as GBP/USD, GBP/JPY, GBP/CHF then GBP/CAD.
The new order is arranged as GBP/CHF, GBP/USD, GBP/JPY then GBP/CAD and seen as GBP/CHF 1.2855, GBP/USD 1.3820, GBP/JPY 149.86 or 1.4986 then GBP/CAD 1.7292. Much daylight exists for GBP/JPY to trade freely between GBP/USD and GBP/CAD yet 250 pips traded last week from a distance of 1100 and 2500 pips between exchange rates.
Why GBP/CHF and all currency pairs arranged as Other Currency / CHF dropped from contention as support is due to the uniqueness to the SNB’s interest rate system. Libor is miles from actual interest rates as first comes Saron, Call Money rates and the most vital Debt Register Claims.
JPY cross pairs overall contain downside moves from GBP/JPY at 300 pips and 200 for AUD/JPY and NZD/JPY.
USD/JPY for the week is not only light years overbought but the 5 year average is located at 109.01. A good target is found at 106.65.
GBP/JPY big break lower is located at the 10 year average at 148.38. A break then GBP/JPY trades 146.00’s easily.
GBP/USD this week opens between 1.3768 and 1.3840. Below 1.3768 challenges most vital 1.3697, above 1.3840 then GBP/USD travels much higher.
GBP/CHF and GBP/CAD run good and positive correlations at +93% and +96 % for GBP/CAD. For GBP/NZD and GBP/AUD remain problems as correlations run negative at -43% and -64% for GBP/AUD.
Included are GBP/JPY moving averages from 5 day to 253 days. The averages are perfect and derived from the ECB. The first number is the day average followed by trading days then the average.
A 20 day average is actually 15 days, a 50 day average is actually 36 days. Trading day averages to factor perfectly start at the beginning of every year then the numbers increase as days trade. A 50 day average is most stable as it only trades 36 to 50 days.
A 5 day average begins Monday at 2 days, then 3 for Tuesday and Wednesday and 4 for Thursday. A full 5 day average only trades on Fridays.
5 Day 5 149.2391
10 Day 9 149.1325
20 Day 15 148.3808
50 Day 36 145.2691
100 Day 71 142.5398
200 Day 143 139.9417
253 Day 180 139.1231
As GBP/JPY trades lower then the averages drop.
Targets are not only known miles ahead but targets stack to watch trades unfold.
Current targets: 149.7549, 149.8496, 149.5086, 148.1852, 146.0887, 143.7901, 143.0356.
The ECB and most central banks factor exchange rates to 6 decimal places and 4 for USD/JPY and JPY cross pairs and I follow the ECB exactly.
AUD/USD broke its long standing and much written line at 0.7821 and traded 57 pips to 0.7877. Above 0.7821, AUD/USD ranges between 0.7821 to the 10 year average at 0.8305 or 484 pips. Below 0.7821, AUD/USD trades 0.7821 to 0.7308 or 513 pips. Below 0.7821 exists 0.7605.
DXY last week maintained its 148 pip range between 89.95 to 91.43. Above 91.43 next targets 92.78 in a 135 pip range.
GBP as written in the last post maintains deep overbought status across all GBP pairs except GBP/NZD. Watch 1.9136 this week for best moves.
EUR/USD opens in fairly perfect neutrality however ranges continue to compress. Problem pair EUR/JPY and all JPY cross pairs maintain deeply overbought status for week 4. EUR/CAD, EUR/NZD and EUR/AUD open the week massive oversold. EUR/CAD and EUR/AUD will provide the best moves.
Stand clear EUR/CHF as AUD/CHF and NZD/CHF will provide better movements.
NZD/USD 0.7267 then 0.7356 Vs 0.7267 and 0.7990. NZD/CAD is overbought while NZD/JPY heading into week 4 maintains richter scale overbought status.
Overall, NZD/USD traded 200 pips from 0.7100’s to 0.7300’s for the past 2 months and provided support to GBP and AUD to allow both to move higher. Explains the divergence seen in EUR/NZD Vs GBP/NZD this week.
USD/JPY watch 104.97 and USD/CAD 1.2587 Vs 1.2826.
Overall currency markets are in the great deadlock between natural opposites EUR/USD and USD/JPY. Current USD/JPY at 105.74 trades 84 pips above its vital high/ low point at 104.89. This line is rising. EUR/USD trades around its current high /low point at 1.2039. This line moved 1 pip lower since yesterday’s ECB at 10 A.M. EST. EUR/USD and USD/JPY achieved its crowning achievement by rhe great divide to currency pairs.
USD/CAD at 1.2600’s and GBP/USD at 1.3800’s or 1200 pips informs this distance is far to wide. GBP/USD trade to 1.4000’s while USD/CAD was located at 1.2500’s or 1500 pips assisted to diminish the distance yet 1200 pips informs a big move is ahead. Normal distance is 3 to 500 pips.
For the past four weeks as written, JPY cross pairs were and continue to trade in severely overbought territory. The degree of overbought is recognized as 500 pips from AUD/USD 0.7700’s and AUD/JPY at 82.00’s and 500 pips from NZD/USD 0.7100’s to NZD/JPY 76.00’s. Normal is in the vicinity of 100 to 200 pips maximum because NZD/USD and NZD/JPY are the exact same currency pairs much the same as AUD/USD and AUD/JPY.
The divide grows wider at 800 pips from GBP/USD 1.3600’s to GBP/JPY at 147.00’s and 700 pips from EUR/USD 1.2000’s to 127.00’s for EUR/JPY and normal is 100 to 200 because GBP/USD and GBP/JPY are the exact same currency pairs much the same as EUR/USD and EUR/JPY.
USD pairs EUR/NZD at 1.6700’s trades 2500 pips to GBP/NZD 1.9200’s. Normal trades around 1600 to 1800 pips and 700 pips off kilter.
The EUR/USD and USD/JPY relationship is distinguished by the massive and extreme divide between and among currency pair prices, particularly USD and overall cross pairs as the primary driver to current prices.
Today’s trade is presented as a two trade option by matching significant day trade support, resistance and levels. Short the highs and long the lows.
USD/JPY highs Vs EUR/USD Lows.
USD/JPY up target 106.43 vs EUR/USD 1.1985 lows.
USD/JPY 106.36 Vs EUR/USD 1.1998.
USD/JPY 106.29 V EUR/USD 1.2011
USD/JPY 106.16 Vs EUR/USD 1.2015
USD/JPY 106.09 Vs EUR/USD 1.2023
USD/JPY 106.03 Vs EUR/USD 1.2028.
USD/JPY 105.96 Vs EUR/USD 1.2034.
EUR/USD Highs Vs USD/JPY lows
EUR/USD 1.2107 Vs USD/JPY 105.37
EUR/USD 1.2099 Vs USD/JPY 105.44
EUR/USD 1.2091 Vs USD/JPY 105.51
EUR/USD 1.2076 Vs USD/JPY 105.58
EUR/USD 1.2068 Vs USD/JPY 105.63
EUR/USD 1.2061 Vs USD/JPY 105.71
EUR/USD 1.2053 Vs USD/JPY 105.79
EUR/USD 1.2049 Vs USD/JPY 105.87.
EUR/USD is a complete opposite pair to USD/JPY however prices never match pip for pip as the relationship runs 7.62 pips for EUR/USD Vs 6.62 for USD/JPY.As a side note all market prices especially Stock Indices are factored the exact same as a currency price. The difference is in the name and number yet its all the same.
Not many pips trade anymore as the old days of trading therefore pips and profits are maximized by multiple longs and shorts per currency pair. All information is known in advance of the trade therefore no stops, charts and whatever is needed nor applied.
Monday starts with a slight optimism on the major exchanges but it’s hard to call it a game-changer as the volatility is rather low and we can sense a holiday mood on the trading floors. Worry not, in this environment we were still able to find three interesting trading setups, which you may find very interesting.
First one is a small update about the AUDNZD, which we mentioned a few times at the beginning of the month. Back then, the price was testing crucial resistance on 1.085. Price was trying to close a day above that level since September 2019. In ourprevious analysis, we said that price closing a day above that resistance will be a legitimate buy signal. And it did! Since that time, we got 8 bullish days in a row and price is currently 180 pips higher, what a move! With this, the long-term sentiment is definitely positive but a chance for a short-term bearish correction is rising.
As for the NZD, we do have a very negative situation on the NZDJPY, where we broke the lower line of the rectangle, which gave us a proper sell signal. Now, we are testing the neckline as we do have a proper head and shoulders formation. Priceclosing a day below the neckline will be a super strong sell signal, especially when we will consider a weekly chart and the shooting start candlestick bouncing from the long-term downtrend line.
Last but not least is the EURPLN, which is on the verge of breaking crucial horizontalsupport – 4,4. In the shorter-term, the price created a rectangle pattern and Mondaystarts with an attack on its lower line. First attack seems unsuccessful and it actually opens a way up north based on the possibility of a false breakout pattern. One is certain here. We are getting closer and closer to a final decision, sharp breakout and a slide or a bounce.
The US dollar gapped lower to kick off the trading session on Monday, but then bounced enough to reach towards the ¥107 level rather early. With that being the case, the market looks highly likely to continue seeing selling pressure above, and I think that if we do rally from here, we are likely to see the ¥107.50 level offer even more selling pressure.
The ¥107.50 level has been a magnet for price for this pair and I think at this point we are simply killing time. We look at the longer-term charts, you can see that there is a massive symmetric triangle, which is looking highly likely to lead towards a bigger move given enough time. However, right now we are not quite ready to do anything so unless you are a short-term trader, this pair is not going to offer much.
USD/JPY Video 23.06.20
That being said, the chart is not completely useless. Notice how the Japanese yen is doing and you can translate that is a secondary indicator in other pair such as the GBP/JPY pair, NZD/JPY pair, etc. Ultimately, the market could show strength or weakness in the Japanese yen that you can use in other markets. Once we finally get an impulsive move, perhaps on the weekly chart, then we can start to take a look at bigger trades. Until then, this is simply an indicator or a five-minute chart type of market that is simply back and forth with a range bound system being the most effective way to trade until conditions change.