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Japanese Yen Futures (Dec 2012)Japanese Yen Futures (Dec 2012)Japanese Yen Futures (Dec 2012)

Japanese Yen Futures (Dec 2012)

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6JZ2012 trade ideas

Where is the Yen HeadingInterest rates are to asset prices, like what gravity is to an apple, once said Warren Buffet. Low interest rates imply low gravitational pull to asset prices. Similarly, a loose interest regime when faced-off against a fierce monetary stance, can send the former currency deflating at an alarming clip. This paper peeks into the Japanese macro environment. It then contrasts it with the situation in the US. The sentiments among the respective central bankers amid the macro forces at play will dictate the path ahead for the Yen. Bank of Japan's (BoJ) "looser for longer" policy when weighed against "higher for longer" Fed’s stance, points to Yen weakening to JPY 155/USD by the end of the year. Accordingly, this paper posits a short position in CME Japanese Yen futures expiring in December 2023 to gain from a weakening Yen with an entry at 0.0069445 followed by a target at 0.0064600 and hedged by a stop loss at 0.0074075, delivering a reward-to-risk ratio of 1.05x. FOREX MARKETS ARE A WINDOW TO MACRO SENTIMENTS The past two weeks have been eventful in FX markets. It has been marked by volatility and uncertainty with fresh fears of rate hikes following Fed’s hawkish tone at Jackson Hole and strong economic data. An otherwise stubbornly robust US labour market has finally started to show signs of cooling. The fears around and the resilience of the broader US economy is evident in the performance of the DXY as shown by the chart below. Even as the path ahead for the USD remains uncertain, its strength against the Yen looks far more certain. RECESSION DEFYING RESILIENT US ECONOMY The Fed has maintained a hawkish tone. Why? Fed is data driven. And the data points to a resilient US economy with inflation and consumer spending rebounding. However, last Friday's job market data finally points to some cooling. The US labour market has shown incredible resilience in the face of a slowing economy. The data from JOLTs survey highlights that job openings in the US have declined for the last three months and now stand at a 2.5 year low but remains at elevated levels. The job openings to unemployed ratio is at 1.51. Typically, this ratio should be between 1.0-1.2 in line with moderating inflation. The PCE price index for July was released last Thursday which showed a higher-than-expected US inflation reading after almost a year of cooling inflation. It was not entirely surprising as a more moderate increase was expected given the moderation in base-level effects. Crucially, core inflation rose to 4.2% from 4.1% highlighting that underlying inflation remains stubborn. The PCE release points to consumer spending in the US 0.8% higher MoM in July, across both goods and services. Spending grew at its fastest pace in six months potentially risking renewed spike in inflation. Fresh inflation risks in the US have been driven by rising fuel prices. Oil prices have risen due to supply cuts from Saudi Arabia. Gasoline pump prices are at its highest level for the year at USD 3.83/gallon as of end-August as per American Automobile Association. Food prices have also been on the rise globally driven by supply imbalances. STAGFLATION FEARS ARE SURFACING IN JAPAN Stagnation and tepid demand best describe Japanese economy for decades now. BoJ is resolute in maintaining ultra-low interest rates in its effort to drive demand. BoJ has had mixed success in stimulating its economy. As stagnation recedes, stagflation fears loom. Stagflation is an economic condition of stagnating economy combined with high inflation. Inflation in Japan has been on the rise for the past year, driven by a surge in global commodities (food & fuel) and the effects of higher prices in other countries. Loose monetary policy along with a higher deficit over the past year has weakened the Yen 5% against the USD. With BoJ committed to further stimulation, the Yen is likely to continue weakening. Notwithstanding tweaks to its YCC (yield curve control) policy and BoJ's FX market intervention, the BoJ has reiterated that its focus is on maintaining stability rather than strength in the Yen. Wage growth this year was driven by the Shunto negotiation in 30 years of 3.8% increase in base pay. However, real wage growth remains low. Wage growth will have to continue sustainably, rather than through sporadic, one-time, increases. Japan is at the cusp of exiting decades of deflation. Despite CPI above 2% target, BoJ fears that it is premature to declare victory as pace of services inflation remains moderate. This might push BOJ to maintain monetary policy loose for longer to ensure that Japan doesn’t tip back into deflation. This continued dovish stance risk pushing the USD/JPY pair to 155, forecasted Goldman Sachs FX strategists. However, if BoJ pivots to being hawkish, JPY is expected to strengthen to 135/USD. TRADE SET UP Using CME’s Japanese Yen Futures, investors can secure exposure to the Yen. Each lot provides an exposure to 12.5 million Japanese Yen with exchange maintenance margin requirements of USD 3,300 per lot (as of September 4th). Each pip expressed as 0.0000005 per JPY increment delivers a P&L of USD 6.25. The proposed trade set up comprises of short position in Japanese Yen Futures expiring in December 2023 (6JZ3) with an entry at 0.0069445 followed by a target at 0.0064600 and hedged by a stop loss at 0.0074075, delivering a reward-to-risk ratio of 1.05x. • Entry: 0.0069445 (~JPY 144/USD) • Target: 0.0064600 (~JPY 154.8/USD) • Stop: 0.0074075 (~JPY 135.0/USD) • Profit at Target: USD 6,056.25 (( /0.0000005 = 969 pips x 6.25) • Loss at Stop: USD 5,787.5 (( /0.0000005 = 926) pips x 6.25) • Reward-to-Risk: 1.05x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:6J1!Short
by mintdotfinance
Dollar’s Fate Following US Debt DowngradeVideo discussion: 1. What will happen to the US bonds themselves? 2. What will be the impact on the US dollar and other currencies? 3. How will inflation be affected? We will also discuss the relationship between the US Bond, US Dollar and all the other Currencies. Reference for trading in currencies: CME Euro FX Futures & Options Minimum fluctuation 0.000050 per Euro increment = $6.25 CME Japanese Yen Futures & Options Minimum fluctuation 0.0000005 per JPY increment = $6.25 CME British Pound Futures & Options Minimum fluctuation 0.0001 per GBP increments = $6.25 CME Australian Dollar Futures & Options Minimum fluctuation 0.00005 per AUD increment = $5.00 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:6J1!Short
by konhow
3
Japanese Yen Is Trading At The SupportJapanese Yen has been one of the weakest currency in the last couple of months. But, looking at the JPY Futures chart, we can see it finishing a larger A-B-C corrective decline, while it's trading at the support, which can cause reversal and recovery for the Japanese Yen. Even COT data of the japanese Yen shows extreme levels for Large speculators (green). It means that we may see some slow down of a current bear move, or even rally in the months ahead.
CME:6J1!Long
by ew-forecast
USDJPY Mid-Term Bearish Expectation/Analysis The explanation for this analysis is in the text on the chart This expectation is a framework to look for a potential trading setup; I don't just execute based on these levels. I always wait for confirmations on lower timeframes This Analysis was done using my complete Strategy, which includes the: - Smart Money Concepts - Multi Timeframe Liquidity and Market Structure - Supply And Demand - Auction Theory - Volume Analysis - Footprint - Market Profile - Volume Profile - WYCKOFF - ETC PD: excuse my poor english
CME:6J1!Short
by SmartMoneySource
Trigger for my JPY trades. I tend to believe that the JPY might go a bit lower before a reaction. I am watching this carefully for a potential dump in the other pairs like GBPJPY or NZDJPY for example. Sometimes the market tries to catch with early entries before on last push in the initial direction to trigger break out trades and trigger some stops as well. Then the real flush happens after. There is a possibility of some distribution for a few days as well. I am in one short only now, small position. Lots of missed opportunities if the dump happens right now at those levels but I am simply waiting for one more push down with the JPY index so we can get a reaction across most pairs.
CME:6J1!Short
by edumas2
Yen Step Back, Two Steps ForwardDespite sharp inflation, the Bank of Japan (BOJ) left YCC unchanged on March 10th. This was Haruhiko Kuroda’s last meeting as BOJ Governor. Japan is still struggling to stoke growth at risk of sustained stagflation. Hence, his decision to leave rates intact was no surprise. Kuroda left the YCC unchanged. Analysts expected him to scrap the YCC so that the new incoming governor, Kazuo Ueda could start afresh. Hopes of change are now expected at the next BOJ policy meeting on April 27th. Kuroda leaves behind a mixed legacy. His strong monetary stimulus lifted the Japanese economy out of deflation at the cost of hurting bank profits with ultra-low rates. Growth has remained tepid. Kuroda has been a source of stability. More than what was needed in the staid land of the rising sun. Now, the monetary policy landscape is expected to shift as Ueda takes charge. New BOJ leadership and an aggressive US Fed will create near term weakness in JPY followed by medium term strength. This case study analyses a two staged positioning in CME Japanese Yen Futures to harness yield from anticipated currency moves. Change of Guard at the BOJ Under the new governor, definitive shifts are afoot. Inflation in Japan is non-negative. Really? Yes. Not only non-negative but also at levels unseen in 43 years. Kuroda may not have radically transformed Japanese economy, but he managed to revive its equity market. The risk of uncertainty and volatility exists once he leaves the office. Markets are used to perennial Japanese low inflation, and to a consistent central bank leadership. Both are now going or gone. Another big shift is BOJ's more definitive independence. While separate from Government of Japan, BOJ was seen as being an integral part of Abenomics to snap out of deflation. The Kishida-Ueda relationship is different. Prime Minister Kishida has not outlined a particular direction on macroeconomic policy. Politically, the LDP is far from united, not least on fiscal and monetary policies. Kishida’s base of support within the party is fragile, and his approval ratings have been in a prolonged slump. As a BOJ governor, Ueda comes from an unconventional background. He is the first academic to assume leadership of BOJ. He has not managed a large organization. He is knowledgeable about monetary policy and is a protege of Stanley Fisher. What, then, can we expect from Ueda? He is not convinced that inflation is sticky. Ueda maintains that “…inflation is led by cost-push factors” and “it will still take time to achieve sustainable inflation.” It does hint that he isn't someone who will make any sudden major moves. That said, in a parliamentary hearing earlier this month, Ueda hinted that the current YCC was unlikely to survive. Engaging the market is essential he said before adding that “in some cases, adding a surprise factor is unavoidable.” There is growing evidence emerging from the annual “shunto” (a big wage negotiation between unions and employers) that workers are asking for the largest raise in base pay in 25 years. Some Japanese employers have already raised wages sharply higher with case in point being Fast Retailing (a Japanese listed firm and parent company of Uniqlo) which raised pay by 40% earlier this year. Until now, it has been possible to attribute Japan’s inflation to the rise in the cost of imports driven by weak yen. Big wage increases would change that. However, the latest data, published Tuesday, shows that wage growth is not rising as fast as expected. In cash terms, it reached the highest level in decades last year, but the January figure was far lower. Real wages adjusted for inflation have been falling the most since 2009. Balancing growth while keeping inflation under control is not a small feat. Next BOJ policy meeting is more than a month away. Meanwhile, the US Fed is becoming more hawkish in its fight against domestic inflation. Another rate hike by the US Fed will further weaken the fragile Yen. The US macro environment is making an already complicated situation even more difficult. The failure of Silicon Valley Bank along with closure of Signature Bank and Silvergate Bank is testing the Fed’s wit. US Inflation continues to remain hot and three times the Fed’s target. With the liquidity backstop in place, the Fed is likely to jack up its rate by another 25 basis points when it meets on March 22nd. CME’s FedWatch tool pegs the likelihood of that happening at 82% as of March 14th. Against that backdrop, Ueda could do one of the three once in office – (1) further widen the 10-year JGB interest rate band, (2) target shorter term yields & thereby reduce JGB holdings, and (3) abandon yield targeting altogether. Options Markets are Bullish JPY/USD Options on CME’s Japanese Yen futures have an overall Put/Call ratio of 0.56 across all expiries, indicating that investors are expecting the Yen to weaken. In sharp contrast though, options for the July contract show a deviation from the trend with a Put/Call ratio of 2.6x. This coincides with the release of the 2nd Outlook Report by the BOJ after Ueda takes over, indicating the market expectation on Yen’s reversal versus USD starting July. How much more JGB can BOJ keep buying to sustain YCC? Can this last? Last December, the BOJ tweaked its YCC policy, to allow the 10-year Japanese Government Bonds (JGB) yield to move 50 basis points (bps) on either side of its 0% target, wider than the previous 25 bps band. The move stunned markets as BOJ hinted at monetary tightening after having stuck to its ultra-loose policy stance for a long time. YCC tweak spilled over into January as BOJ was forced to purchase a record $182B of JGB to defend its higher yield cap from breaching the ceiling of 0.50%. The BOJ now holds more than 50% of JGB, making the situation ever more unsustainable. Adding to the JGB burden, BOJ also owns the majority of domestically listed exchange traded funds (ETFs). Besides massive JGB purchases, the BOJ remodeled in January a funds-supply operation into a tool to prevent yields from rising rapidly. Beyond the current short-term loans, the BOJ amended the rules to offer funds extending up to 10 years with variable rates. In January, BOJ provided loans of 3T Yen in the January offer before extending the terms of the loan to 10-year for subsequent loans. In February, BOJ tweaked the fund-supply policy terms, including the quadrupling of minimum lending fee from 0.25%-1%, to limit the short-selling of JGB’s, this indicates that the BOJ is having to use all tools at their disposal in order to defend JGB yields from rising above their defined cap. The BOJ defended yet another attack on the YCC again in February prompting a further $2.2B of JGB purchases to keep yields from breaching the ceiling. Economists anticipate that Ueda will fundamentally revisit YCC before BOJ lands in crisis. Ueda starts on April 9th. It is unlikely that he will make any radical moves instantly. Meanwhile, Fed Chair Powell is going all guns blazing to tame inflation down. Jobs data released last Friday showed the creation of 311,000 jobs smashing expectations of 225,000 jobs indicating a tight labor market. A strong labor market risks fueling a wage-inflation spiral, leaving the Fed with no choice but to jack up rates further. Two Stage Trade Setup to Gain from Near Term Weakness & Medium-Term Strength CME’s Japanese Yen Futures provides investors an exposure of 12.5 million Japanese Yen for every lot with the price quoted in USD per JPY increment. Every 0.0000005 change in JPY provides an increment of $6.25 in contract value. With the USD expected to strengthen in the near-term, JPY will weaken until the next policy meeting on April 27th. As such a short position using CME Japanese Yen futures expiring in June (6JM2023) would provide a reward-to-risk ratio of 0.6x. Stage 1 Entry: 0.0075390 Target Level: 0.0074550 Stop Level: 0.0076670 Profit at Target: $1,050 Loss at Stop: $1,725 Reward-to-Risk: 0.6x Stage 2 Thereafter, if Ueda starts to steer Japan’s monetary policy stance differently, JPY will start to strengthen in the medium term. Following from a short position in the near term, a subsequent long position in CME’s Japanese Yen futures will allow the investor to gain from the strengthening JPY. Entry: 0.0074550 Target Level: 0.0081445 Stop Level: 0.0072775 Profit at Target: $8,620 Loss at Stop: $2,220 Reward-to-Risk: 3.88x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or needs of any person. Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance. All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience. Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk. These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
CME:6JM2023Long
by mintdotfinance
2