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Squawk / 28 July 2016 at 20:09 GMT
Blogger / MoreLiver's Daily
Finland
Bank of Japan meets and is expected to announce the big guns - increasing quantitative easing and fiscal spending.

Investors have mostly expected this for some time now, so at least a majority of the package is already "priced-in" - reflected in the current level of the JPY exchange rate.

A good time to review the charts, then:
28 July
fxtime fxtime
Agree we may have a degree of ''pricing in'' but so far BoJ et al have been superb at not saying anything until the actual meeting as opposed to say Carney advising ...oops sorry suggesting imminent base rate adjustments....or even Yellen advising...oops sorry suggesting etc etc.
28 July
SYED ALI SYED ALI
can you please reply if bank of japan increase the quantitative easing so jpy will go bullish or bearish ?
28 July
fxtime fxtime
Syed it is more what they really do....they may simply jawbone and churn their bond purchases by extending their duration which does nothing to Mr + Mrs Watanabe. What we all wish for is some real action for the public to benefit from and use. Money for once has to flow into the voters as opposed to Bonds where the so called funds return to the BoJ only. Negative rates penailse savers but why should they spend when deflation brings down prices anyway...it is better save and await a cheaper price and it is this cycle that must finally be broken as the BoJ will soon reach 100% GDP liability exposure.
28 July
fxtime fxtime
Juhani...were you intending to post some charts with your article?
28 July
SYED ALI SYED ALI
so fxtime what will be your strategy for friday trades?
28 July
Juhani Huopainen Juhani Huopainen
Monthly: Both USDJPY and EURJPY bounced up from an important horizontal support level (touches of that level marked with red circles).

The USDJPY has tended to trade between 100-130 during the couple of decades - with only two episodes below that level - recently since the financial crisis begun. The price turned higher in 2012 when it was apparent that the Bank of Japan would begin massive money printing.
28 July
Juhani Huopainen Juhani Huopainen
(sorry, was stuck with something else)

Weekly: Not much to add, but the trend lower since the beginning of 2016 (USDJPY) and mid-2015 (EURJPY) is clear.
28 July
Juhani Huopainen Juhani Huopainen
Daily: Vertical lines show previous Bank of Japan-meetings. The trend lower mentioned in the previous chart is clearly visible. The bounce higher in USDJPY and EURJPY begun from the trend channel's bottom and in case of the USDJPY has reached the channel's top.

The 105-area seems like a good resistance level (touch in beginning of May, trading around it in mid-June, and then trading around it again recently).

During the 2016 trend lower, the price has made recoveries of around 500 pips in January, April and May. So the current move higher is not unheard-of.

It could very well be that we are still within the trend channel, and as we are at the top of it, the pair could easily turn down from here and try to visit the 100-level again - or even continue to make a new low as per the trend channel.
28 July
Juhani Huopainen Juhani Huopainen
So we've visited an important support level on monthly charts and turned higher from there, but the daily bear channel is still in place.

The bear trend channel suggests SELLING USDJPY and targeting levels close to 100 would be what the chart says. However, the double bottom and the monthly support level suggest that a break higher is also possible.

I expect investors to be disappointed (eveyone is expecting massive QE now), and will lift the price higher on the announcement first, but then realize that the price move is already done.

This is a classic "buy the rumour, sell the fact" -case, but with the small difference that now the price could actually move a bit further to higher on the confirmation of QE.

See also
https://www.tradingfloor.com/posts/why-the-yen-run-will-end-in-tears-2310902

and
https://www.tradingfloor.com/posts/the-yen-run-ending-in-tears-is-a-prophecy-come-true-7533545
28 July
fxtime fxtime
Syed....a golden rule for me is to await the facts and trade from them and not position myself before any announcement.
28 July
fxtime fxtime
As always Juhani...a great overview/analysis...thanks.
29 July
zefy zefy
Amazing price action out there!

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