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Tight March Range May Have Found Catalyst



USD/JPY Rate Forecast Talking Points:

  • USD/JPY Price Forecast: USD/JPY fails to break 26-day midpoint, remains in bearish stature
  • JP Finance Minister, Aso confirms Moritomo documents were altered to remove names of him and PM Abe
  • USD/JPY Rate Insight from IG UK: 3.15:1 long to short ratio by retail favors further declines

After trading in a rather tight sideways range of a few hundred pips, USD/JPY may have found a volatility catalyst in the Moritomo scandal that has recently resurfaced. Nikkei News Asia said it best, and most succinctly when they said, “The revived scandal threatens Prime Minister Abe’s grip on power.”

Either way, the USD/JPY downtrend remains entrenched below on closes below 107.095 (spot at 106.43), and institutions are looking for the broadening potential that USD/JPY could retest 100 if the scandal erupts.

Understanding Moritomo, and its potential Impact

Typically, scrubbing names from official documents of high ranking officials is a bad sign. Recently, Japan’s government released confirmation that scrubbing the names of Prime Minister Shinzo Abe and his wife, Akie along with Finance Minister Taro Aso had taken place around a land scandal that is said to benefit Shinzo Abe’s wife.

While Aso is blaming the subordinate who made the scrubbing known, the focus of markets is on Shinzo Abe’s statement that he’d resign if any link surfaced linking him or his wife over the disgraced property deal offering heavy discounts on public land to ultra-nationalists.

The JPY has yet to break the March range of 105.25-107.20. However, news that Abe’s key minister, Aso will skip the G20 meeting and further developments on the Moritomo Gakuen, the educational foundation with supposed nationalist agenda could cause the monthly low to break. The break would likely happen quick if Abe’s political future based on his promise last February were likely to be exercised ending his bid to become Japan’s longest running Prime Minister.

USD/JPY Rate Forecast Looks to Ichimoku for Downside Bias Below 107.095

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Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

On the price chart with the Ichimoku Cloud technical study applied alongside a 2 sigma channel dating back to December 2016. Per Ichimoku, trader can see that the price has traded below the cloud (seen as broad resistance in a downtrend), and the Kijun-Sen or 26-period midpoint since January 10 when the price broke below 112.50 and traded to as low as 105.20 in early March.

105.25 was the closing high in October 2016 before the Trump Election kicked USD/JPY higher to 118.66 by mid-December, less than two months later. Per Ichimoku, the lagging line remains below price from 26-periods ago favoring bearish momentum remains in play.

The spot rate is trading at 106.40, but they key resistance to keep in mind would be the 26-period midpoint at 107.095. A break, and close, above 107.095 may show a broader shift is in play, but until then, the momentum favors keeping sights set toward the 100% extension lower at 104.20, followed by the September 2016 low at 100.

Unlock our Q1 forecast to learn what will drive trends for the Japanese Yen and the US Dollar!

Insights Derived From IG UK Retail Positioning Data

USD/JPY Rate Forecast: Tight March Range May Have Found Catalyst

USD/JPY Insight from IG UK Client Positioning

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias.

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for

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If You Build It, Will They Buy? A Demand Led World




Fundamental Factors Focus:

  • US optimism peaking, which may mean the risky asset rally has further to run
  • Aggressive supply of base metals, energy is increasingly dependent on global demand picture
  • Signs of a ‘dollar shortage’ that aligns with risk off markets remain absent

Capital flows, business activity, a premium of borrowing costs, and consumer confidence are foundational components of an economy that sees investors rushing into risky assets, and shying away from investments that don’t capture the upside.

Optimism Reigns Stateside

Two data points have recently moved to extremes not seen since the kick-off of the Regan economic boom in the early 1980s that saw interest rates and inflation drop alongside tax cuts enacted that boosted confidence and productivity.

3 Measures Of Economic Activities Hitting Multi-Cycle Highs, Recession Unlikely

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Data source: Bloomberg, Chart created by Tyler Yell, CMT

The first data point, the Institute for Supply Management (ISM) Manufacturing Business Survey just aligned with the NFIB small business optimism index to hit levels not seen in years. For the Small Business Optimism Index, it recently reached the highest level since 1983 where the ISM hit a 13-year high last month.

Friday morning also saw a 14-year high of the University of Michigan Consumer Confidence reading with an all-time high with the current conditions gauge that measures American’s perception of their personal finances hitting an all-time high.

What is worth noting in both cases is that both in the early 80s, and ISM in May 2004 was seen at the early- to mid-point of an economic expansion. Should a similar development be in place, traders should keep their low-probability high-impact scenarios saved for their NCAA March Madness Brackets, and the high-probability mid-impact events applied to investing.

In other words, and as I argue in Ichimoku Charts that Matter, shocks tend to happen in the direction of the trend. Rallies typically don’t end with a bang opposing extreme optimism like we see now, but rather, rallies tend to rollover, and the sharp downside moves that make headlines that turn into a bear market often come off a bad news crescendo when investors tend to sell first, and ask questions later.

Currently, we seem to be far away from a rollover as optimism reigns supreme. Also, aside from the 2001/2 recession, peaks in confidence tend to happen early- to mid-cycle favoring an extension of the current risky-asset buying environment.

Unfamiliar with Key FX Fundamental Factors to watch? No worries, I created a primer for you here

You Can’t Have Demand without Optimism, and Demand Is up per Oil Data

Two stories in the commodity world that have come to surface in recent months is the aggressive supply of crude oil from US shale producers that is running counter to the plans of OPEC and strategic alliance like Russia to reduce the supply glut.

Another focus has been on supply from China regarding steel and aluminum. The supply remained uncomfortably high for many despite the winter production curbs and enforced reduction and in some cases, halting of supply from ‘rogue’ metal suppliers. The trade tariff’s from US President Trump appear squared on China and Europe, and could cause the supply from China to not be adequately absorbed, and may put pressure on prices if optimism and demand do not stay supported.

However, in Crude’s case, at least when looking at IEA projections, demand is making the aggressive supply coming online be quickly absorbed. The monthly IEA report predicted a widening supply deficit forming later this year due to the decline in Venezuela’s Oil Production due to their own economic turmoil. The IEA forecast could mean that the global oil inventory surplus would disappear in H2 2018.

While demand is exciting in the short-term, supply is often stickier. Suppliers tend to look at their supply as prophetic, and a fall of demand is often seen, and hoped to be temporary. That is the pickle that global oil producers found themselves in during the 2013-2014 supply build up as demand fell-off and eventually sent Brent Oil to $30/bbl, before a sharp bounce took in early 2016.

Crude Oil And Crude Produce Stockpiles Continue To Fall On Higher Demand

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Data source: Department of Energy, Bloomberg

Next Arrow in the Bull’s Quiver, No Dollar Shortage in Sight

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Data Source: Bloomberg

Out of the gates of the Great Financial Crisis was a sharp inverse correlation between the US Dollar and riskier asset price levels. A large factor in this development was the view that there was a US Dollar shortage and demand for haven assets as investors remained unsure of the sustainability of the feeble recovery.

One of the metrics looked at in the financial market is sometimes referred to as the market’s plumbing or liquidity around the reserve currency, the US Dollar. The market that is utilized to see ‘funding stress’ or a ‘dollar shortage’ is the cross currency basis swap or when a currency from one investor is exchanged for another currency based on swap rates calculated from each country’s yield curve.

The chart above shows the rising LIBOR-OIS spread, which indicates a higher interbank borrowing cost over the implied Fed reference rate. While the spread is widening, stress that typically aligns with Dollar strength and a ‘dollar shortage,’ appears no where insight. The orange line shows the 3M EURUSD 3M cross currency basis swap with sharp downspikes showing funding stress. The lack of funding stress with the stable orange line means that traders looking for an aggressive dollar rally based on the shortage of USD argument could be waiting a while for their anticipated outcome to play out.

As a swap contract, there is no value on initiation, and the market value is based on demand for once currency or another. When looking at the EUR/USD or USD/JPY cross currency basis swap, you can see if a ‘dollar shortage’ is developing or whether they were plenty of dollar in the system such that the swap shows less of a demand for US Dollars.

Given the typical inverse correlation to the US Dollar and risky assets, a weaker dollar or lack of dollar supply like the chart above shows could mean that the risky asset rally has room to run as the other points make sense.

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—Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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US Dollar on Offensive Before Fed Rate Decision. Will it Last?




US Dollar on Offensive Before Fed Rate Decision. Will it Last?

Fundamental Forecast for the US Dollar: BULLISH

  • US Dollar fell on in-line CPI data, then rallied into Fed meeting
  • Pre-emptive gains hint markets worried tightening will accelerate
  • Policy bets tellingly dwarfing news-flow from Washington DC

Join our webinar for live coverage of the FOMC rate decision and its impact on the US Dollar!

A week marked by seesaw price action ended with a spirited push higher for the US Dollar. The rally was especially notable in that it occurred without an obvious fundamental catalyst. The week’s top data point of interest was February’s CPI print. The headline inflation rate printed exactly in line with forecasts at 2.2 percent, which eased worries about Fed rate hike acceleration and sent the greenback lower. A weekly bottom started taking shape a mere five hours later however, from which it rallied into Friday’s close.

The recovery tracked a parallel rise in front-end US Treasury bond yields. That this occurred after the influence of the CPI release subsided appears telling. The next bit of noteworthy event risk would not come until the FOMC monetary policy announcement on March 21. After newly minted Fed Chair Jerome Powell led a hawkish pivot in officials’ rhetoric in recent weeks, it seems entirely reasonable to suspect that it may mark a pickup in the expected pace of stimulus withdrawal. The Dollar’s rise then look like pre-positioning.

The priced-in rate hike trajectory implied in Fed Funds futures for 2018 has stabilized around 75 basis points, matching the Fed’s own forecast. Investors’ view for 2019 remains modest however. One rate hike is expected and the odds of a second are seen as worse than even. Nothing is on the books for 2020. That leaves plenty of scope for the Federal Reserve to signal a more assertive disposition. The first post-announcement press conference with Chair Powell presents a further opportunity to reinforce the pivot.

The US currency’s preemptive rally telegraphs the markets’ concern with such an outcome. Momentum will probably slow ahead of the announcement, with traders unwilling to commit until after it hits the wires. When that happens, fireworks are likely. The Fed’s primacy in shaping trends coupled with a tame docket in the days thereafter also means follow-through faces few obstacles. Indeed, short work was made of Rex Tillerson’s actual ouster from the Trump administration and H.R. McMaster’s rumored one last week.


— Written by Ilya Spivak, Sr. Currency Strategist for

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GBP: From Famine to Feast




GBP: From Famine to Feast - BOE, Hard Data and Brexit

Talking Points:

  • UK data releases include, Inflation, jobs and wages
  • Bank of England MPC announcement
  • EU Council meeting on the EU/UK transition period.

Fundamental Forecast for GBP: Neutral

While we remain neutral on Sterling at this current point, GBP may be in for a rocky ride next week with market moving data points including inflation, jobs and wages as well as the latest monetary policy announcement from the Bank of England. And just to round the week off, the EU Council will meet on Thursday/Friday to discuss the latest EU/UK transition period documents with UK businesses waiting for the outcome.

The latest inflation and wages data may well see the gap between the two narrow further – inflation expected to slip lower/wages expected to tick higher – giving the UK consumer more money in their pocket. The recent negative real wage gap has weighed on the UK retailers in particular and any narrowing of the gap may bring welcome relief to the high street.

The Bank of England is expected to leave all monetary policy levers untouched on Thursday but any change in voting pattern on rate hikes, or hawkish commentary in the accompanying statement may cement a rate hike at the May meeting, boosting the British Pound.

The UK and the EU are targeting next week’s EU Council meeting to finalise a Brexit transition period, giving government and businesses the clarity the require to build for the future. While negotiations have taken a slight turn for the better of late, with both sides adopting a more conciliatory tone, there possibility of a last-minute hitch is still very real, an event that would hit both GBP and EUR lower.

GBPUSD Price Chart Three Hour Timeframe (February 27 – March 16, 2018)

GBP: From Famine to Feast - BOE, Hard Data and Brexit

— Written by Nick Cawley, Analyst.

You can contact the author via email at or via Twitter @nickcawley1.

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