USD/JPY Dropped On Fading BOJ Stimulus Expectations

USD/JPY Dropped On Fading BoJ Stimulus Expectations

• Japan's government is likely to inject JPY 6 trillion in direct fiscal outlays into the economy over the next few years under a planned stimulus package,  the Nikkei newspaper reported on Tuesday. The Finance Ministry had initially earmarked JPY 3 trillion for direct spending from national and local governments under its draft fiscal stimulus plan. But the amount was doubled on requests for bigger spending by government officials and ruling party lawmakers, the Nikkei said without citing sources. The size of spending could increase further as the government presents the draft stimulus plan for negotiations with ruling party lawmakers from Tuesday, the paper said.

• The direct spending would be part of a massive stimulus package to bolster the economy, which would also consist of state subsidies to private companies and lending programmes from quasi-government financial institutions. The total size of the package, which could be announced as soon as August 2, could exceed JPY 20 trillion, the Nikkei said. To fund part of the package, the government will compile a supplementary budget for the current fiscal year of around JPY 2 trillion, the paper said. The rest will be funded in the budget for the next fiscal year beginning in April 2017, it said.

• The Bank of Japan is expected to announce expanded asset purchases and a rate cut further into negative territory at the end of its policy meeting on Friday.

• The JPY rose today, as traders dialled back expectations of how much new stimulus Japanese authorities will inject into an ailing economy. The JPY has dropped in the past few weeks on growing expectations that Japanese authorities would provide both fiscal and monetary stimulus to kick-start inflation. Some had been hoping for helicopter money, whereby the central bank would underwrite government debt, though policymakers have denied this is part of their plans.

• Japanese Finance Minister Taro Aso said on Tuesday he expected the BOJ to continue doing its utmost to meet its 2% inflation target and left it to the BOJ to decide on specific steps.

• The USD/JPY has been capped by the cloud in recent days. We are looking to fade recovery moves at 105.80. A close below 104.25 level (38.2% retrace of the 99 to 107.49 rise) would be a strong bearish signal. We expect an elevated volatility in the coming days.

 

GBP/USD: Support At 1.3059 Still Not Broken

• Bank of England policymaker Martin Weale said he saw the economic outlook differently after much weaker-than-expected British PMI data, a week after saying he needed firmer evidence before backing an interest rate cut. He said that PMI data for the services and manufacturing sectors, which pointed to the sharpest contraction since the 2008-09 financial crisis were a lot worse than he had thought. Markets are taking Weale's comments as near confirmation that the Bank may introduce a stimulus package at its next meeting.

• The BoE surprised markets in July by not cutting rates, which had been on hold since 2009, but the minutes of the decision did show that most policymakers expected to back an unspecified package of measures to boost the economy in August.

• Weale has served for six years on the BoE's Monetary Policy Committee and will step down after next week's decision. He is aware that history will be less kind to him given he was in a minority in favour of hiking interest rates in late 2014. It will be interesting to see if BoE MPC member Kristin Forbes also changes her colours from the "Keep calm and carry on" motto last week.

• The GBP/USD hit a two-week low on Tuesday after Weale’s comments, but the 1.3059 level (61.8% retrace of the 1.2798 to 1.3481 rise) is still a very strong support. What is more, 14-day momentum is now marginally positive, which is a risk factor GBP bears need to keep in mind. We stay sideways on all GBP pairs.

FOREX - MAJOR PAIRS:

FOREX - MAJOR CROSSES:

PRECIOUS METALS:

It is usually reasonable to divide your portfolio into two parts: the core investment part and the satellite speculative part. The core part is the one you would want to make profit with in the long term thanks to the long-term trend in price changes. Such an approach is a clear investment as you are bound to keep your position opened for a considerable amount of time in order to realize the profit. The speculative part is quite the contrary. You would open a speculative position with short-term gains in your mind and with the awareness that even though potentially more profitable than investments, speculation is also way more risky. In typical circumstances investments should account for 60-90% of your portfolio, the rest being speculative positions. This way, you may enjoy a possibly higher rate of return than in the case of putting all of your money into investment positions and at the same time you may not have to be afraid of severe losses in the short-term.

How to read these tables?

1. Support/Resistance - three closest important support/resistance levels

2. Position/Trading Idea:
BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.

3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.

4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)

5. Position Size (forex) - position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).

6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.