USD/JPY, BOJ, Intervention

Many would view USD/JPY at 140.03 and say the price is to high, BOJ will intervene. We’re hearing rumblings from a few regarding intervention. The current price is not the view to intervene but the range of BOJ prices in relation to the interest rate. Notice the singular word to rate. The BOJ only has 3 interest rates and 1 interest rate to serve as the middle bound rate. So we have only 2 rates.

USD/JPY 140.03 is the beginning to view possible intervention. USD/JPY in relation to interest rates runs aa follows”

131.76 and 148.80

140.17 and 139.89

127.84 and 153.37

Broken down.

131.76, 144.41 and 148.80

140.17 and 139.89

127.84, 146.70, 153.37

From 148.80 to 140.03 = 877 pips and 1334 pips from 153.37 to 140.03

The top price for USD/JPY was 151.93 when DXY achieved 114.79 highs. BOJ intervened October 22 at 149.00’s and 150.00’s and drove USD/JPY to 146.00’s.

Let’s go with 151.93. What did October 22 look like for BOJ interest rates and USD/JPY.

143.26 and 161.11

152.08 and 151.77

139.77 and 165.14

Broken down

143.26, 156.52, 161.11

152.08 and 151.77

139.77, 158.53, 165.14

161.11 minus 151.93 = 918 pips

165.14 minus 151.93 = 1321 pips. Now compare above and below. 877 pips Vs 918 pips and 1334 pips Vs 1321.

Same numbers to distance from present exchange rates today and OCT 22. Because interest rate difference was 70 points from today to OCT 22. The BOJ topside and middle interest rates didn’t change but the bottom number changed by lower at 70 points.

And the bottom side interest rate number I assume was the verdict to intervene. The exchange rate is the key as BOJ interest rates hardly move any great distance day to day. But BOJ interest rates don’t have to move as a slight change by 1 and 2 points can really move USD/JPY.

The BOJ topside number today is 0.941 and OCT 22 = 0.943. The bottom today 0.913 Vs 0.920 on October 22 and 70 pip difference.

The October intervention send USD/JPY to 146.00’s. USD/JPY 146.00’s is found from 152.08 to 143.26 or 147.67.

BOJ interest rates are the easiest and quickest to factor for exchange rate trades. And this validates my friend’s statement that many money managers in Japan trade all types of currencies.

Overall, exchange rates are in the same situation today as Oct 22. The topside is to high in relation to interest rates.

Brian Twomey

FX Next Week: EUR/USD V DXY and USD

DXY began trading last week at deeply overbought 102.00’s then traveled to 104.00 highs. At 104.00’s clocks in at 400 pips higher since the 100.00 lows. Currency markets may begin to use the word extreme prices as it applies to DXY, USD/JPY, GBP/JPY, EUR/JPY, AUD/USD, NZD/USD, USD/CAD.
GBP/USD and EUR/USD trade deeply oversold yet not close to extreme levels.

DXY since May 1 traded 18 days at an average of 36 pip days or at bare minimums to allowable normal day trade moves. This doesn’t reveal we have a new upward DXY trend. DXY 4 weeks ago traded 101.00’s at the same time GBP/USD hit massive resistance at 1.2700’s and EUR/USD at crucial 1.1100’s. The month of May was spent trading reversals as short GBP/USD and EUR/USD vs long and higher for DXY and USD.

The problem to the higher DXY and USD scenario is DXY achieved extremes and higher DXY forced extreme highs to USD/JPY, USD/CAD and many EM currencies as EM/USD. GBP/USD and EUR/USD traded fairly normal ranges at 400 pips from the vital highs. AUD/USD, NZD/USD and USD/CAD lacked the ability to trade 400 pip ranges as AUD/USD and NZD/USD now trade extreme oversold to USD/CAD and DXY extreme overbought.

What we have is DXY and EUR/USD at the approach of 105.00’s as market prices traded directly to the brink. DXY and EUR/USD trade roughly 150 pips to the crucial 105.00 levels. The reversals seen in May should now result in DXY and USD downside to EUR, GBP, AUD and NZD longs and higher.

USD/JPY was caught in the crossfire to higher DXY and lower EUR/USD as USD/JPY has been overbought since at least 135.00’s. USD/JPY decided it should trade above the DXY 36 pip trade days by trading 100 pip days over many days throughout May.

The commonality to currency prices is 400 pip ranges and 200 pip targets. The further commonality to 105.00’s is all currency prices and all financial instruments fall in line inside a nice and neat format. Higher EUR/USD for example says higher XAU/USD, SPX, Crude, Yields and associated risk assets.

AUD/USD for example at 0.6500’s trades extreme oversold to the 0.6930 average or 400 pips. Note 0.6930 today Vs December 0.6970. The AUD price changed while the average remained the same. AUD/USD now trades at the extremes from 0.6900’s and many averages above 0.6900’s.

NZD/USD at 0.6000’s trades deeply oversold from 0.6433. In December the average was 0.6457 or a 19 pip change in 5 months.

The week

USD/BRL as written from Sunday, below 5.0435 and 5.0487 targets 4.9531, 4.9520, 4.9037. Lows achieved 4.9349 and + 500 pips.

Overall for next week, short USD, DXY, USD/JPY is matched by longs to EUR, GBP, AUD and NZD.

NZD/USD for example targets 0.6257 at minimums and AUD/USD at 0.6755 and 0.6868. Long is the only strategy.

EUR/USD higher must break 1.0780 then the same old story as 1.0780, 1.0943, 1.1127. Current EUR/USD trades 1.0715 to 1.0650 on a long only strategy.

USD/JPY trades not only severely overbought but extremes begin at 141.51. The range to extremes trades from 141.51 to 143.79. Targets next week are located at 137.75 and 136.99. USD/JPY must break 136.23 then USD/JPY accelerates lower.

EUR/USD any price in the area of 1.0704 is ripe for longs to target 1.0873 and 1.0953 as just the beginning to higher prices. EUR/USD big break for lower from 1.1100’s was 1.0953 to allow 200 pips trade to 1.0700’s.

GBP/USD from 1.2700 highs traded to the brink at vital 1.2331. The levels at 1.2331 must hold then GBP/USD ranges from 1.2331 to 1.2593 and 1.2855. Same old GBP/USD story over the last months. GBP/USD’s big break was 1.2593 to offer 200 pips to 1.2300’s. GBP/USD first target is located at 1.2473 then the resolution to 1.2593.

USD/CAD targets 1.3449, 1.3322 and caution at 1.3298. The caution to USD/CAD is overbought CAD/JPY.

GBP/JPY targets easily 171.30 and 169.67 as the vital break must occur at 168.02. EUR/JPY targets 147.93 Vs vital break at 146.82.

Shorts to EUR/AUD and GBP/AUD as well as GBP/NZD and EUR/NZD.

Best trades for the next few weeks as follows: EUR/USD, GBP/USD, GBP/JPY, EUR/JPY, USD/JPY, EUR/AUD, GBP/AUD, GBP/NZD, EUR/NZD. Then added are: AUD/USD, NZD/USD, USD/CAD.

For EM/USD, last week’s trades hold as USD/MYR, USD/RON, USD/CNY, USD/TRY, USD/CZK, SGD/MYR.

For USD/TRY targets 18.87 as first target and any price above is good for shorts as 18.87 USD/TRY must meet the target.

Brian Twomey