Options expire coincidence

We know that DXY can move a lot, in favor or negative with the correlated dollar pairs. Continuing or change the direction of the trend before even gets completed. Alternately boost up the momentum without providing any overbought or oversold, RSI signal even when microeconomic news don't offer any change. There's a big order of USD/JPY options that expires today with strike price at 113.9 dollar. This classic paradigm today with will change trend moving upwards just to close near a big option order at 113.936 above100h morning average and 200h moving average at 113.92 which indicates topping near resistance with a immediate bounce back even when at the right time lands good news boosting USD. Placing an order following the trend providing profits -doesn't mean that you collected the maximum available-. 

Descriptive analysis of Yen pair with BTC

The pair of YEN seems to be correlated negative with the rise of Bitcoin. Risky traders prefer to choose on alternative method of investing rather than buying Japan's safe currency. With the scatter plot comparing USD/JPY with Bitcoin linear line has a positive incline with JPY median and mean staying before Bitcoin's. The volatility of cryptocurrency world does not help the standard deviation comparing to Yen of 1.16 having the closing prices near median of 110 which happens to be also the mean.

Descriptives
		USD/JPY Close		BTC Close		USD/JPY Low		USD/JPY High		BTC Low		BTC High
N		64		64		64		64		64		64
Mean		110		45732		110		111		44148		46881
Median		110		46211		110		110		44575		47249
Standard deviation		1.16		6302		1.07		1.13		6075		6260
Minimum		109		29864		109		109		29336		31004
Maximum		114		62496		114		114		56916		62719

 

Banking role

The key role of financial intermediaries and financial markets is to provide a mechanism which resources are transferred and allocated to the most productive opportunities.

No need for intermediation of funds (ie banks):

• Direct financing: borrowers receive funds directly from lenders in the financial markets (with obstacles, difficulty and expense in meeting the needs and their incompatibility)
• Financial claim (any financial asset eg share): a claim for payment of a future total amount of money (or periodic) which implies an obligation for the issuer (borrower) to pay interest periodically and to repurchase the receivable at a fixed value of three (financial) ways:

1. On request
2. After a specified notification period
3. On a specific date or within a time frame 

Weekly Citi's Forecast

 Citi FX outlook

The fundamental backdrop remains bearish for JPY as – (1) UST yields continue to rise steadily leaving US – Japan rate differentials weighing on JPY; and (2) Japanese investor flows not favoring a stronger Yen – recent monthly data from Japan’s MoF do show Japanese investors turning net buyers of foreign bonds. The team remains bullish JPY vs USD, targeting a rising channel base at 109.11-15.

Previously

• USDJPY: 6 – 12 months: 112.0
• USDJPY: Longer term: 112.0

Currently (as of Oct):

• USDJPY: 6 – 12 months: 114.0
• USDJPY: Longer term: 112.0

MT Bias: Turning more neutral JPY vs USD; Bullish JPY vs EUR, CHF

Tactically modestly bearish JPY vs USD 

Tactically bearish JPY vs Commodity FX (AUD, NZD & CAD), GBP and Asia EMFX (CNH & SGD)

Sealed case

It's the final day of the week and the yen settles downwards. Friday today had a welcome surprise with rising CPI helping Japan to rise closer to near 2% inflation aiming. The Bank of Japan monetary policy meeting is on October 27 & 28 will held new Information and There have been rumours of expected forecast downgrades to be included in the new outlook which probably will help the rise of yen pairs. As for Technical analysis we are near a gorge, a move forward means the downfall of USD/JPY bringing back the old resistance of 109-110 level. Zone than occupied more than 10 weeks in the past going side ways.

1h chart of USD/JPY

OIL Drowdown

The rise of JPY happened as a contribution from the knock over of commodities. Japan, a heavily industrial country importing mainly energy and Special oil from Asian cartel. OPEC today node negative to a lower oil price coming from increasing output to supply the demanding zone of G3. Strange the oil follows the firm dollar and the weak loonie after weeks of top currency. The only Strong of the day seems to be the Yen, safe choice over volatility times.

On point

USD bulls went to stocks. The currency today dive DXY 93.5, same story with bitcoin 

as 66.5k triggered the down alarm to lose 2.5k from the start of the day. JPY rose as forecasted without any news correlated today. The big highlight of the day was US initial jobless claims 290K versus 300K estimate, a nice welcome drop to unemployment but somehow did not triggered right away the rise of dollar leaving it down 0.02%. Two pictures of correct forecast of the week. 

Short USD/JPY

USD seems to be losing strength as well as yen, but the momentum of yen currency push the pair downward. We have multiple tries with dollar fail rally attempts, with bulls keep inconsistent push while short side keep strengthen. Unfortunately today was a quiet day without any economic calendar news thous is possible to see a closing near to open Price. Tomorrow is a totally different thing, I see a rapid downfall of USD/JPY possible to close near 113.5 but this is just a guessing while we have many important news coming tomorrow as can be collaborated with both currencies up and down.

USD/JPY 1D

FOMC aftermath

FOMC minutes results: Reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS)

CPI outcome: Core Inflation Rate YoY unchanged 4% and Inflation Rate YoY 5.4% +0.1% more than expected.

Dollar index retreated to 94.1 with fear of inflationary pressures remained high in September helping the equities to rally US500 +0.28% USNDX+0.76%. FOMC showed that it is close to start tapering, possibly in mid-November with hike rates possible at late 2022 or early 2023. 

As predicted, JPY rallied USDJPY: 113.28 -0.27 -0.24%

CPI DATA

Dollar index DXY

JPY rally

This is the first day seeing a JPY rally after from a row of 13 red days. Japanese equities tried the mega squeeze in September, but that is gone. 

"Japanese equities have done nothing since February. The recent excitement was all about the reflation trade happening, but despite the surge in yields, TOPIX has refused bouncing much. The only difference this time around is the fact people have bought into the story..." - themarketear

Moving on, there's CPI report coming 12:00 pm GMT with inflation waiting to be 5.3% and the core one 4%. Today we shall approach using Buy the rumor Sell the news method. This ancient strategy provides not only risk free action but also the power of jumping early at the profits wagon. Getting serious, just avoid placing any orders during pre. news as volatility is low during that hours. The safe bet today is 113.0 - 113.5 for USD/JPY being the zone of expiring options.

Weekly Citi's Forecast

Citi FX outlook

The fundamental backdrop remains bearish for JPY as – (1) UST yields continue to rise steadily leaving US – Japan rate differentials weighing on JPY; and (2) Japanese investor flows not favoring a stronger Yen – recent monthly data from Japan’s MoF do show Japanese investors turning net buyers of foreign bonds. The team remains bullish JPY vs USD, targeting a rising channel base at 109.11-15.

Previously

• USDJPY: 6 – 12 months: 112.0
• USDJPY: Longer term: 112.0

Currently (as of Oct):

• USDJPY: 6 – 12 months: 114.0
• USDJPY: Longer term: 112.0

MT Bias: Moderate bearish JPY vs USD; 

Modestly bullish JPY vs EUR 

Tactically moderately bearish JPY vs USD; 

Tactically bearish JPY vs Commodity FX (AUD, NZD & CAD), GBP and Asia EMFX (CNH & SGD) 

Sell signal

Yes, I do get a TDI sell signal as Bollinger bands contract waiting for a burst move downwards. Now 09:00 am GMT, both London and European markets open. The move to place a short trade today is risky, I counter offer you to wait for CPI tomorrow Wednesday. The USD/JPY seems to have been settle to 113.5 area. A move up will break towards to 114.17 - 114.5 price zone. The move upwards is limited in compare of the downside which can easy drop to 110.0 who was a immersive support zone. Tomorrow is the big market day. 

The price fluctuates as the longs rose 7.3% today but consumer sentiment favors the short side at the moment with weekly longs dropped by 10.19% according to IG. Fear and energy crisis plays a huge role coming from Evergrande crash delaying the third bond payment. 

Price density areas-Price data-Bollinger bands density-Sentiment

USD/JPY correlated to commodities

The raise of commodities does not justify the weakening of JPY. As the rapid raise of energy markets occur so does the treasury yields and strength of DXY index happens. The up rise of Yen seems to be more correlated to USD rather than commodities. Bellow the USD/JPY pair next to coal and WTI oil. Japan's substantial reliance on imports for fuel, raw materials, and food, domestic industries are equally exposed to higher prices from a weak yen. This is why Japan favors for a strong currency. 

WTI, Coal & USDJPY from Sep 1, 2021 till Oct 12, 2021

A different approach today

We explore the correlation of JPY with the other currencies. As we expect JPY is heavily dependent in coal and oil making it to responds negatively to heavy commodities pairs AUD,CAD and NZD. 

Bellow the two charts, the one with correlations and the other with currency market moves. Do we approach to the AUD & CAD overheat that needs a cooldown? Which currencies do depend more to se a opposite move from them taking the lead afterwards. 

Correlation 

Market glance

USD/JPY trinity

Adding more to USD/JPY weekly stats of DXY/US10YT/USDJPY since 2016 till Oct 2021 here is the graph with DXY/US10YT/USDJPY. As we can see the price correlates better with treasury yields rather than DXY dollar index. Same happens with US10YT and DXY. 

USD/JPY with US10YT and DXY 

1H currency strength index

As forecasted, bull momentum skyrocketed USD/JPY in Asian/early Europe session. The close will be near open or higher? The retrace to 50% waits for Wednesday's CPI or Friday's retail sales. 

Todays support and resistance seems to have been form. 
Resistance: 113.863 - 112.064 - 111.694 - 110.465
Support: 109.187 - 108.496 - 107.617 - 104.732

Start of the week with USD/JPY point of view

Its before 8am in New Zealand, and as is usual for a Monday morning, market liquidity is light. Some small change from late Friday levels with USD/JPY dropping slightly to 112.14

Pair rose as the bullish push from nonfarm payrolls was massive. The data did not cope (expecting higher stats) and the funds didn't dump treasury yields with S&P closing lower pushing all along the USD currency. 

Asian and Europe session expects to have the most volatility and volume today as US Columbus day and Thanksgiving for CAD will drop the liquidity later on. We expecting a correction to 23.6% 111.475 or 38.2% today 111.000 but the first move of the day will push the price a little higher as bullish momentum of Friday kept the currency idea upwards. The close will be near open price or somewhat lower. 

USD/JPY weekly stats of DXY/US10YT/USDJPY since 2016 till Oct 2021

The tables of Descriptive analysis and correlation of US dollar index, 10 year treasury yields and USD/JPY weekly close data. 

Descriptives

Descriptives
		DXY		Price		DGS10
N		301		301		301
Missing		0		0		0
Mean		95.5		109		1.94
Median		95.7		110		1.91
Standard deviation		3.17		3.47		0.707
Minimum		89.1		100		0.550
Maximum		103		121		3.21

Correlation Matrix

Correlation Matrix
				DXY		Price		DGS10
DXY		Pearson's r		—
		p-value		—
Price		Pearson's r		0.344		—
		p-value		< .001		—
DGS10		Pearson's r		0.084		0.536		—
		p-value		0.147		< .001		—

Bonus: correlation plot with density graph 

10-year Treasury yields importance today

10-year yields adds another 2 bps today to 1.59% and close to cross the 1.60% mark a technical area of last month breakout. My point of view is that bond sellers will go after profit taking, distribution and a mark-down activity. All that depends a lot on what the US nonfarm payrolls release will be later today.

Scatterplot of US10Y 2016 weekly till today correlated with weekly's close price:

JPY Citi views & strategy Bias/ Forecasts/ Key level

Citi FX outlook

The latest BoJ Tankan report reveals the USDJPY breakeven target for Japanese manufacturers at 107.64 in FY2021 which is a considerable distance from current levels around 111.00 and which means little need for Japanese exporters to sell USD to hedge their export earnings at current levels.

Previously
• USDJPY: 6 – 12 months: 112.0
• USDJPY: Longer term: 112.0

Currently (as of Sep):
• USDJPY: 6 – 12 months: 112.0
• USDJPY: Longer term: 112.0

MT Bias: Moderately bearish JPY vs USD; 

Neutral JPY vs EUR; Short CAD vs JPY

Tactically bearish JPY vs USD,
Commodity FX (AUD, NZD & CAD), 

GBP and Asia EMFX (CNH & SGD)

Stock market today taught us

 Every stock market price depends on:

• projected earnings per share
• period of realization of profits
• projected profit risk
• use of loan funds
• company dividend policy

The objective of a company is to maximize the wealth of the shares and not to maximize profits (microeconomic approach) as the risk of returns and the timing of the implementation of investment programs are not taken into account. 

Main project of every company follows these three Financial principles:

1. Investment decision: finding, evaluating and selecting investment programs where they will be carried out in the future in risky conditions with the possibility of being different from the expected returns. This is how we set minimum efficiency penalties. The CFO* also makes decisions about the assets as well as to modify and replace them.
2. Financing decision: Excellent capital structure where it maximizes the common share price or minimizes the total capital cost. It affects current and future investment program activities by setting a minimum required return.
3. Dividend policy: decision to distribute profits as dividend or withholding for investment in investment programs (degree of internal financing). It affects the stock market price and is associated with the excellent capital structure.

*CFO: responsible for raising funds and using them to increase corporate value.

US session forecast results

USD/JPY 1h graph displaying US opening

USD/JPY EU session: Bullish 

USD US session: Bearish 

Forecast was correct, the pair dropped after climbing 23.6% retracement 111.37 price point. 

Next target 111.0 and below zone. 

Overall point of view seems that's possible to close higher that 1 Oct as price stuck between 100 and 200 hour moving average. 

USD/JPY US session, Monday 4,Oct 2021

Past week we witness a huge ramp up of USD treasury yields as results the skyrocket of USD pair. JPY went vulnerable after Fumio Kishida takes office as Japan's new Prime Minister. USD/JPY manage to climb high as 112.078 (a Feb 2020 price area) ringing the bell looking for a better safe alternative (currently USD) as the grow of commodities and the linked currencies make them better alternative displacing CHF and JPY. Wait for mid October or 2W/9M price action to see a opposite move or small rally.

Moreover the correlation of JPY with S&P 500 we saw a late week move up as equities rose 30 Sep and 1 Oct. For instance, while a case can be made that the JPY shouldn’t be a safe haven currency, it behaves as one. When S&P500 weakens, the pair historically tends to drop (above chart based on weekly data since January 2000). Nordea

The area of the currency vary between 111.3 and 110.88. Asia kept JPY high with toping 111.15 and closing 110.97. Early Europe session rose the pair up to previous weekly close retesting the 23.6% retracement. US start seems to be a firm one as there isn't any significant news coming today. Equalities shall engrave the course of price action expecting to rise opposing treasury yield 14.65 slope (- 4.19% down today). The close of US market looks to be a loss for USD currencies but a green day for the pair, high fiving 112.0 price point giving the first clue for the pending mini retrace aiming to 50% mark 110.570.

Option expire: 111.25 (550m) 112.20(450m) 

Pivot points: R3 111.81 R2 111.55 R1 111.40 PP 111.14 S1 111.00 S2 110.74 S3 110.59

Price distribution between Bollinger band:

FX Pairs 1W/10M 2021

U.S. Dollar Index - LONG

The weekly price chart below shows the U.S. Dollar Index printed another bullish candlestick last week after having earlier rejected the zone of support which I had identified between 11899 and 11833. The price is above the levels from 3 and 6 months ago, which shows that the long-term bullish trend in the greenback is still valid. However, the candlestick closed within the bottom half of its range after falling for two days, so the short-term momentum is against the USD right now. This suggests that trades in the USD look better on the long rather than short side right now, so the best strategy in the Forex market over the coming week will probably be to look for long trades in US dollar currency pairs but only once the short-term momentum turns from bearish to bullish.

NZD - LONG (Rate hikes, watching WEDNESDAY, OCTOBER 6 meeting)

Rate hike in November is possible depending on the data, but over the next 12-months, the market appears to be pricing nearly five quarter-point rate hikes.

AUD - NATURAL / SHORT

After the disappointing news of aussie economy, the currency seems to have a downfall.

EUR/USD - SHORT

The main reason for our forecast of a lower EUR/USD has been relative real rates and the expectation that the Fed will turn relatively more hawkish than the ECB. We see no reason to change that view currently. Far and away the main question over the coming week will be whether nonfarm payrolls will expand rapidly enough to meet the Fed’s conditional guidance to taper bond purchases ‘soon.’ They might, but the suite of available evidence leaves open the risk of disappointment.

The EUR/USD currency pair broke to a new 14-month low price, closing near the bottom of its weekly range, although Friday did produce an up day. The euro has the steadiest long-term weakness of any major currency. These are bearish signs. It is likely that the price will continue to move lower over the coming days, although the medium-term downside may be limited by the big psychological round number below at 1.1500, which is confluent with a long-term pivotal horizontal level at 1.1517 which may halt the drop. There is an attractive short-term short trading opportunity here.

The euro fell hard last week, as the bond yield differential between the United States and Germany finally got too wide. That being said, we are desperately trying to hang on to the 1.16 level, but with this type of impulsive candlestick it does make sense that we will continue going lower. I anticipate that fading rallies will continue to be the way the market moves more often than not, with perhaps the 1.17 level above being a bit of the ceiling in the short term. If we can break down below the 1.15 level, the bottom will more than likely fall out.

USD/JPY - SHORT

The US dollar has been on an absolute tear against the Japanese yen over the last couple of weeks, and as a result of exhaustion was likely to come back into the picture eventually. That is exactly what we have seen, but there is still plenty of buying interest underneath that will support this market. I think that the ¥111 level is a natural place for this market to close from the previous week, and I think that the “bottom” is closer to the ¥110 level. I like the idea of buying dips going forward.

For instance, while a case can be made that the JPY shouldn’t be a safe haven currency, it behaves as one. When S&P500 weakens, the pair historically tends to drop (above chart based on weekly data since January 2000).

For market participants pondering FX hedges against Q4 tail risks we would however consider USDJPY shorts (or other JPY longs). Sure, the likely trajectory for dollar liquidity over the next six months should be USD positive, but this is unlikely to matter for this pair if risk sentiment weakens. We also argued earlier this year that the enormous rise in US excess liquidity won’t crash the dollar, and there’s a case to be made that dollar swap lines, standing repo facilities, massive QE program elsewhere have changed or altered the relationship between the dollar and dollar liquidity.

USD/CAD - SHORT

The US dollar continues to bounce around between the 1.25 level and the 1.28 level against the Canadian dollar. The past week has told us that more likely than not we could see a little bit of a pullback, in what would be an anti-US dollar move. While we are seeing US dollar strength against other currencies, oil has been rising rather rapidly, and perhaps that might be one of the main drivers of where we go next. Nonetheless, I would look for value hunters near the 1.25 level even if we do break down significantly. Over the course of this next week, I fully anticipate that we will still be stuck in the same range.

NZD/USD - LONG

The New Zealand dollar fell most of last week against the US dollar, but as you can see, we have recovered quite nicely. The question now is whether or not the support will hold. If we were to turn around and break down below the 0.68 level, it is likely that this market will fall apart quite drastically. However, if we end up turning around and breaking above the 0.70 level, that could be a bit of a turnaround. It will be interesting to see how this plays out, because this market is almost like a microcosm of what we see everywhere else: lots of choppy behavior without any real clarity.