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Complexities of the Global Market Machine
The Japanese Yen experienced a very bullish day Last Friday. One of the most bullish days it has had in quite some time. This was caused by news headline coming from the Bank of Japan. The BOJ is going to intervene in the FX markets to support the japanese yen. This strengthened the yen big time by creating artificial demand for the yen which added to the bearishness of the US dollar on Friday. All of the other major world currencies were strengthening in unison on Friday which brought down the dollar in a big way and added to the bullishness in the US equity markets.
In the chart below you can see the massive one day volume candle that happened on friday showing that there were a great number of investors trading that day off of the BOJ news. Also take note of the farther dated futures contracts which were gaining much more green on the day than the current contract. This is a bullish indicator as it shows that for that day investors are betting on the yens current downtrend to change course and the value of the yen will increase going far out into the future.
Japan has been known to be a sort of currency manipulator more so than a lot of the other developed countries. They have also been know to flip-flop their policy stance from time to time. So even though friday looked very bullish for the japanese yen there is a chance that this bullishness will not last long. After all the long-term trend is obviously down as you can see by the chart below. You don't want to fight the trend until it ends. Right now the trends on all time frames for the yen are pointing downward. But if the sentiment from the BOJ continues then this bullishness may very well continue as well.
In the chart below you can see the massive one day volume candle that happened on friday showing that there were a great number of investors trading that day off of the BOJ news. Also take note of the farther dated futures contracts which were gaining much more green on the day than the current contract. This is a bullish indicator as it shows that for that day investors are betting on the yens current downtrend to change course and the value of the yen will increase going far out into the future.
Japan has been known to be a sort of currency manipulator more so than a lot of the other developed countries. They have also been know to flip-flop their policy stance from time to time. So even though friday looked very bullish for the japanese yen there is a chance that this bullishness will not last long. After all the long-term trend is obviously down as you can see by the chart below. You don't want to fight the trend until it ends. Right now the trends on all time frames for the yen are pointing downward. But if the sentiment from the BOJ continues then this bullishness may very well continue as well.
Directly below you can see a few things including a chart of $USD (USDindex.FX)$. Notice the price action forming a wedge pattern. If the strength in the yen continues, as well as other major world currencies, then the USD will drop. out of this wedge which is good for the major equity indices like $SPDR S&P 500 ETF (SPY.US)$. There is typically an inverse correlation between the USD and equity markets. Generally when the dollar is going down then the market is going up or vice versa. And since the japanese yen is the second largest weighting in the USD Index then the price action of the yen will greatly effect the dollar. You can even see to the left side of the picture a watchlist of all of the tradable currency ETFs. It shows that the tickers related to the yen greatly outperformed any other currency ETF last Friday. The one other currency to watch if want to follow the USD Index closely is the Euro. It is the heaviest weighted allocation in the basket of the USD Index. So its price movements will have the biggest impact of any other currency in the basket. You can see the basket of currencies and their weighting highlighted in the picture below.
If the BOJ wants their currency to gain in value then they will continue to buy up the yen to strengthen its value. If investors believe this trend will continue then we might see some good green days for the yen in our future. But it should be mentioned that when the BOJ enacted this yen strengthening policy last month for the first time in 20 years and it had little effect. The yen continued to fall after a very bullish day. The long term-trend was down and investors new the Federal Reserve was in the midst of drastic rate hikes. Is that the same situation as today? I have highlighted the day last month when the BOJ bought up the Yen to support its value. That day seemed very much like last Friday's bullishness. But the market continued to fall. The only difference from last month is that last friday there was much more volume for the day and the futures contract dated farther out were much more green than the current contract. So last Friday was slightly more bullish than last month.
From a technical standpoint the very bullish day Friday coincided with a dynamic downward trending support level on the Japanese Yen Future's chart as you can see below. Was friday just a technical bounce? Or were the macro factors and news headlines the culprit. I always preach to those that don't trade using technical analysis that very often the you will see major market moving headlines are released around major technical levels. This was the case for the BOJ headlines. So far it does appear to be just a standard technical bounce off of support as the trend is still clearly down. MACD needs a bullish cross and RSI value needs to rise above 50 for the sub-indicators to be in the bullish zone. If the BOJ keeps buying the yen in a big way then this could be more than just a simple technical bounce.
The articles below show you how Japan or the BOJ can use drastic tools to control their currency as well as yields and inflation. Many countries use similar policy instruments or tools like this which are some of the major factors contributing to the volatility in the world's forex market. Some people say the reason for the volatility is all a part of the agreements between countries in the geopolitical currency battle, or the powers of the world battling for supremacy, or a de-globalizing great reset. Maybe all of these situations are correct who knows for sure? The situation in Japan is just one cog in the mechanics of the global market machine. There are many complexities and interdependencies to the global markets and how they are intertwined. It can seem very difficult and confusing when trying to understand the market machine. But If you study the machine and all of its parts long enough then eventually things will just start to click in your head one day and everything fall into place and you will be a very profitable mechanic. And always remember that from a macro standpoint the currency market do indeed effect equity markets.
$Japanese Yen Trust (FXY.US)$ $ProShares UltraShort Yen (YCS.US)$ $Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf (UUP.US)$ $Wisdomtree Trust Bloomberg U S Dollar Bullish Fd (USDU.US)$ $DB US Dollar Index Bearish Powershares (UDN.US)$ $Proshares Ultra Euro (ULE.US)$ $Currencyshares Euro Trust Euro Currency Shares Npv (FXE.US)$ $Swiss Franc Trust (FXF.US)$ $Invesco Ccy Shs Brit Pound Stlg Tr Brit Pound Sterling Shs Etf (FXB.US)$ $Invesco CurrencyShares Canadian Dollar ETF (FXC.US)$ $Australian Dollar Trust (FXA.US)$
I have provided a few of the currency ETF's ticker symbols that I follow. You can simply look at the charts to follow the trends. But on very important bullish days like Friday that had big market moving news headlines then you can use these tickers for some extra analysis. For example the japanese yen had one of these bullish market moving days last friday. So you can check the yen related ticker's options action for that day to see if there was any unusual increase in volume on the farther dated options contracts. Sometimes you can find some very bullish or bearish options action with contracts dated far out into the future. This can sometimes be a good indicator of future price movements. If you see smart money piling into options contracts with very big buy or sell orders then it could possibly change the momentum of the current trend. I have even provided an example of very bullish options action that took place last friday on this ticker, $Japanese Yen Trust (FXY.US)$. Upon closer examination this example shows that there were a great number long calls placed on FXY expiring next month. A lot of investors are bullish on the yen going one month out.
I have provided a few of the currency ETF's ticker symbols that I follow. You can simply look at the charts to follow the trends. But on very important bullish days like Friday that had big market moving news headlines then you can use these tickers for some extra analysis. For example the japanese yen had one of these bullish market moving days last friday. So you can check the yen related ticker's options action for that day to see if there was any unusual increase in volume on the farther dated options contracts. Sometimes you can find some very bullish or bearish options action with contracts dated far out into the future. This can sometimes be a good indicator of future price movements. If you see smart money piling into options contracts with very big buy or sell orders then it could possibly change the momentum of the current trend. I have even provided an example of very bullish options action that took place last friday on this ticker, $Japanese Yen Trust (FXY.US)$. Upon closer examination this example shows that there were a great number long calls placed on FXY expiring next month. A lot of investors are bullish on the yen going one month out.
So do you think the bullish sentiment for the Yen coming from the BOJ will legitimately help out the yen? Or will this time be like last month in which the bullishness died off very quickly and the downtrend continued?
$SPDR Dow Jones Industrial Average Trust (DIA.US)$ $Invesco QQQ Trust (QQQ.US)$ $SPDR S&P 500 ETF (SPY.US)$ $iShares Russell 2000 ETF (IWM.US)$ $VIX Index Futures(JAN5) (VXmain.US)$ $Gold Futures(FEB5) (GCmain.US)$ $Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf (UUP.US)$ $SPDR Gold ETF (GLD.US)$ $iShares Silver Trust (SLV.US)$ $Ishares Iboxx $ High Yield Corporate Bond Etf (HYG.US)$ $Ishares Iboxx $ Investment Grade Corporate Bond Etf (LQD.US)$ $iShares 20+ Year Treasury Bond ETF (TLT.US)$ $Crude Oil Futures(FEB5) (CLmain.US)$
$TENCENT (00700.HK)$ $SSE Composite Index (000001.SH)$ $CSI 300 Index (000300.SH)$ $CSI 300 Index (000300.SH)$ $FTSE Singapore Straits Time Index (.STI.SG)$ $NIO-SW (09866.HK)$ $NIO Inc. USD OV (NIO.SG)$ $NIO Inc (NIO.US)$ $BILIBILI-W (09626.HK)$ $Bilibili (BILI.US)$ $Baidu (BIDU.US)$ $BIDU-SW (09888.HK)$ $XPeng (XPEV.US)$ $Li Auto (LI.US)$ $BYD COMPANY (01211.HK)$ $BYD Company Limited (002594.SZ)$ $S&P/ASX 200 (.XJO.AU)$ $FTSE Singapore Straits Time Index (.STI.SG)$
$TENCENT (00700.HK)$ $SSE Composite Index (000001.SH)$ $CSI 300 Index (000300.SH)$ $CSI 300 Index (000300.SH)$ $FTSE Singapore Straits Time Index (.STI.SG)$ $NIO-SW (09866.HK)$ $NIO Inc. USD OV (NIO.SG)$ $NIO Inc (NIO.US)$ $BILIBILI-W (09626.HK)$ $Bilibili (BILI.US)$ $Baidu (BIDU.US)$ $BIDU-SW (09888.HK)$ $XPeng (XPEV.US)$ $Li Auto (LI.US)$ $BYD COMPANY (01211.HK)$ $BYD Company Limited (002594.SZ)$ $S&P/ASX 200 (.XJO.AU)$ $FTSE Singapore Straits Time Index (.STI.SG)$
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$Chevron (CVX.US)$ $Phillips 66 (PSX.US)$ $Valero Energy (VLO.US)$ $Devon Energy (DVN.US)$ $Occidental Petroleum (OXY.US)$ $W&T Offshore (WTI.US)$ $United States Oil Fund LP (USO.US)$ $United Sts Brent Oil Fd Lp Unit (BNO.US)$ $Imperial Petroleum (IMPP.US)$ $Houston American Energy (HUSA.US)$ $Indonesia Energy (INDO.US)$ $BP PLC (BP.US)$ $Exxon Mobil (XOM.US)$
$Chevron (CVX.US)$ $Phillips 66 (PSX.US)$ $Valero Energy (VLO.US)$ $Devon Energy (DVN.US)$ $Occidental Petroleum (OXY.US)$ $W&T Offshore (WTI.US)$ $United States Oil Fund LP (USO.US)$ $United Sts Brent Oil Fd Lp Unit (BNO.US)$ $Imperial Petroleum (IMPP.US)$ $Houston American Energy (HUSA.US)$ $Indonesia Energy (INDO.US)$ $BP PLC (BP.US)$ $Exxon Mobil (XOM.US)$
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solo invest : Yea this barely affected the markets last month. I doubt investors will have any confidence in the BOJ with the central bank still stimulating the economy. I wonder if all of the other major currencies were rising just because of this catalyst as well. Like maybe this news brought down the dollar enough to cause the momentum to bring up the other currencies. I mean i cant point out why every other currency was ripping like crazy. It seems like it was simply because the dollar was dropping. Was japan the only catalyst? Or were there other Macro events or headlines that are not mentioned here? I didn’t see anything else myself. I’m just wondering… What do yo think of this post @iamiam??
solo invest : Do you have an opinion on this one @Mcsnacks H Tupack? Do you follow forex?
SpyderCall OP solo invest : good person to ask. I might not have noticed any other major forex news last friday. i didnt see anythin else
iamiam solo invest : this is a fed pivot play. There were FED pivot rumors from a convenient WSJ article at 8am (the FED has entered lock down and they can't speak to refute the article). like the post says it came at a support level on the markets and resistance on the dollar and they broke the dollar as it was rallying (we were about to have a -300 nasdaq market day). My guess is the dollar now falls back to the 50MA. Could the article be legitimate? sure, but I wouldn't bet on it.
solo invest iamiam : Agreed. If the dollar goes red then I dont think it will last that long. But who knows
SpyderCall OP solo invest : I second that. equities were due for some green the dollar was due for some red. at least on the short term. so I dont think this will last long if the market does want to go green next week
SpyderCall OP iamiam : You are right on the money with that 50MA