Inside the Currency Market: USD/JPY

Today was a further jump in US interest rates and much higher than yesterday. Libor skyrocketed from 0.1355 to 1.1365 in two days. Normally, it takes about 1 month to see Libor run that fast. Further interest rates trade way above 0.25. The message is Big Sis Yellen is raising Fed Funds tomorrow. I picked USD/JPY as the first case to determine what USD would do under a rate hike but what I found is USD/JPY stuck in ranges. I will report the details but I will also post our old reliable USD/CAD because its a much better mover and has potential to pay much more.

Viewed from the Libor example, the market since Tuesday has been moving towards a rate hike. So by the time of the announcement, the rate rise becomes old news. Between the Fed signaling effect and market pricing of the hike, the announcement will see limited volatility. Sure we should see maybe a 100 pip move but the signaling effect and market pricing forward, the volatility was taken away. Viewed from the recent New Zealand rate rises and falls, volatility wasn’t all that terrific but it was priced by the market long before. Upon announcement, all that’s left is address the level of the currency price.

USD/JPY. Bottom. 120.03. Range break above 121.00, 121.84, 122.75, Below 120.26, 118.43, 118.55. Monitor closely ranges. Overbought sell point, 121.55 but it assumes a rate hike so also look at 121.14 as overbought. Strategy. Longs above 120.65, target 121.14, 121.55. Then reverse short to 121.10 and 120.88. Points on the way up, 120.74, 120.84, 120.90, 121.14, 121.23, 121.39, 121.55.

Shorts below 120.63, Target 120.33. Watch here for reversal to 120.63. Points on the way down,120.58, 120.43, 120.38,120.20, 120.03 Bottom. Point 120.33 must cross to head higher.

Brian Twomey, Inside the Currency Market, btwomey.com

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