Global markets entered to A panic what the jpy could tell us about the future....
Global markets entered what could end up being called a true panic, much of the credit expansion of the last few years has been misallocated towards emerging markets and commodities. The long-term thesis is that much of the global expansion of production for the last few decades has been based on an unsustainable expansion of credit. Productive economies such a Germany and China, in particular, have employed a vendor financing model where their reserves were re-lent to their customers at ever diminishing rates to consume more production. It is worth noting the state of the global banking shares, they are along with general stock markets are showing a severe crisis may now be underway. Credit default swaps for banks are rising and in particular, Deutsche Bank in Europe is now under severe pressure
From close look on the COT data usdjpy we see occurrence Surprising, Since the beginning of upward movement In 2012 the margin was more or less the same level, And now we are witnessing a fork returns, whether this heralds a return the jpy to Safe haven…….
USD/JPY has been known as a currency pair because of its close correlation with U.S. treasuries. When treasury bonds, notes and bills rise, USD/JPY prices weaken. This is a long position. The logic is that the U.S. would never default on its bond obligations, known as defensive assets, hence its safe haven status is secure.
Interest rates in both Japan and the U.S. This means that the pair is a measure of risk that determines when to buy or sell the USD/JPY, in terms of interest rates. Knowing where interest rates are heading will determine the direction of this pair
U.S. stock markets, treasury bonds and the USD/JPY also have inverse relationships. When stock markets rise, bond prices fall, yields rise and the USD/JPY should be sold because investors are more willing to trade risky assets. Stocks are viewed as risky assets and not backed by a government with the ability to turn if fear grips the market. Liquidity here takes on risk rather than the safe status of treasuries.
Changes in correlations may occur for many reasons, U.S. issues more debt by sales of treasury bonds and adds money to the system - if U.S. buys back treasury bonds and adds money to the system ….. . Recessionary times are quite different. What if the U.S. dollar and the yen are both in a downtrend?
The traditional correlative points are: bonds up; USD/JPY up; USD down; yields down and stock markets up.
From looking at the charts we can see the relationship between index and currency (sp500 vs usd/jpy ) We can see something interesting: while the usdjpy went up 106 level to 123 the sp500 didn’t made the same move, was traded between 1815 to 2130 price levels
What we can conclude from this break down the 1815 area at the sp500 could send the usdjpy down easily to 106 area, correlation between the two staying at 114.80 usdjpy 1815 sp500
Bearish on the dollar
The markets have factored in further FRB rate hikes, but there are doubts about the figure of four hikes within 2016.Amid a lingering sense that further easing by the BOJ is approaching its limits, the dollar/yen pair’s movements are marked by a sense of fulfilment in relation to Japanese-U.S. interest-rate differentials. The dollar is expected to slide as real-demand investors build up hedges and speculators close out their dollar positions
The dollar/yen pair’s rise is likely to be kept in check by risk-evasive yen buying on the long-standing bearishness of crude oil prices; concerns about a Chinese economic slowdown; and ongoing concerns about geopolitical risk, with several regions across the globe at risk of terrorism. The next U.S. rate cut is likely to take a place from March or later, so the dollar is not expected to appreciate much on the back of rising U.S. interest rates
Bullish on the dollar
The theme will remain the pace of U.S. rate hikes. There is a gap between the forecasts of FOMC members and market participants when it comes to the pace of rate hikes, so the dollar/yen pair is likely to search for a sense of direction this month while taking on board the U.S. employment results and other data
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