USDJPY - January 30, 2015

With declining volumes and ADX under 15, the pair isn't likely to surprise us today yet. But looking at supports and resistances you can see a few opportunities to build a breakout strategy and catch a few pips in case momentum catches up suddenly.

You want to place your "traps" to catch any move up North: the long-term trend is still bullish and unchallenged.

• The resistance of the ascending channel of Sept/Oct 2014 that was broken on Nov 31st played as support on January 16th and is not far below. May the pair touch this line at around 117, this could be a good buying opportunity with a very tight stop.
• Since the beginning of December 2014 the pair has been contained in a declining channel, after a high at 121.700. If the pair manages to close a daily candle above 119.500 with growing volumes, then the channel is broken and this gives us a good opportunity to ride the wave up to June 2007's at 124.135, which should play as a strong resistance.

Nikkei - January 29, 2015

The Nikkei is still stuck under 18,000, and the daily chart looks less and less bullish. June 2006's high at 18,300 is not far above, the ichimoku cloud has turned red, and the index has made three lower highs with declining volume keeping it in a 1,200 pip range.

However volumes are picking up and the ADX has broken above 30. The Nikkei needs to close a daily candle above 17,900 for me to forget about a possibility that a large-scale correction is coming.

The weekly chart is still completely bullish though, especially looking at last October where the index has broken through a declining trendline that had been respected since 2000. All the indicators still point to the North and the 200 period moving average is faaaaar below (over 5,400 pips).

So what to do?
If I had to trade this, I'd be looking for buying opportunities. However the daily momentum is not clear enough for me to enter here.

Japan economy's paradigm shift, some new details - January 12, 2015

Fresh news from the Japanese government help see more clearly what's cooking. I now have more info to back up my analysis of Japan’s QE and monetary policy.

The government’s budget draft for fiscal 2015 unveils more of Abe’s agenda and what is to expect for Japan over the next few years. Simply put, Abe and his folks think that Japan has to stop living on credit and start paying back their debt. And that’s an absolutely huge change !



What makes me think this ?

Abe had promised to halve Japan’s debt ratio from 2010 levels by the 2020s. However the new draft budget for the year starting April 1st is a record ¥96.3 trillion, up from 95.9 trillion for last year.

Welfare costs in Japan are surging due to the increasing elderly population and the number of families living on welfare hit a historical record. Medical care spending is set to rise ¥1 trillion to ¥31.5 trillion, and the government wants to implement new measures to better support families with children, for a cost of ¥1.35 trillion. Debt servicing, interest payments and redemptions are also set to rise about ¥200 billion to ¥23.5 trillion.




So how will Japan finance all this?

Abe’s plan is to issue less debt, cutting bond issuance by ¥4.4 trillion to ¥36.9 trillion, and to use new tax revenue from the tax hike to cover this budget. Debt will finance about 38% of the budget (down from 43%). This calculation is based on the expectation that consumption tax revenue for fiscal 2015 will increase by ¥8.2 trillion from ¥54.5 trillion (the rise was of ¥4.5 trillion in 2014).

The budget deficit is projected at 3% of GDP, excluding new bond sales and debt servicing. 



Does this seem reasonable ?

No. How can you expect consumption tax revenue to increase when consumption is down? The rise in 2014 was due solely to the rate being bumped from 5% to 8%. The next hike to 10% has been pushed back to 2017.

Another proof that consumption is down is the fact that Japanese consumers are increasingly

looking for lower cost vehicles. In 2014 Daihatsu's Tanto minivan was the country's best seller, with 234,456 units up 62%.

Daihatsu, a Toyota subsidiary specialized in "kei-jidôsha"light motor vehicles with engines of less than 660cc, won the annual best-selling title for the first time. Tax, insurance and maintenance cost of such light vehicles are significantly lower than those of regular cars.

The Tanto is the first kei-jidôsha to top Japan's rankings since Suzuki’s Wagon R in 2008. Seven light motor vehicles are in the top 10 list.

US Dollar and Gold - January 9, 2015

Where is gold headed?

I have a percentage of my savings invested in gold (with a 10+ years objective). I acquired my gold back in 2008, just before it skyrocketed to $2000 per ounce, just to be immediately hammered in 2011, retracing 50% of its incredible rise of 2004-2011.
Gold touched 3 time $1 180 and bounced on it 3 times, even though the USD is on fire. Since October 2014 gold has been hovering around this strong support zone, between 1 140 and 1 200.


On a monthly/weekly chart, gold is obviously bearish as hell. But! A daily chart had me hope again. Since the low of last November 5 at 1 130, the precious metal has made higher lows and higher highs, so has the RSI, with very low trading volume. It has breached above its daily ichimoku cloud and the tenkan -trigger- line is above the kijun -base- line.

Gold needs to close above 1 240 for anything to happen. That's the previous high of December 9, 2014, as well as a monthly resistance and the 200 day moving average.


Of course, for a large scale counter-trend move on gold to happen, we need to see something new on the US dollar chart. And there is no such thing right now. The USD is bullish big time and
unstoppable. What's more, the huge green cloud still looks solid despite the RSI making lower highs in the overbought zone.

USDJPY - January 08, 2015

The mainstream press has recently warned that some investors are worried about a possible rise of the yen next year, because of the instable international political situation, crude oil prices, and Russian ruble.

The BOJ’s quarterly “tankan” survey also showed this month that Japanese businesses are expecting the yen at 103.88 per US dollar by March 2015 (despite the yen trading at 119 something). 

I'm not really into reading the future, but technically such a scenario is very probable. Since the USD/JPY pair mirrors the Nikkei, you can check my analysis of the latter for some insight. 

What's sure is that, just like the Nikkei, the USD/JPY pair has lost momentum and made a series of lower highs on December 22, 28 and January 1. The previous high of December 7, 2014 is at 121.700. 

On monthly and weekly charts, the RSI is largely overbought and the ichimoku cloud looks like a stretched rubber band. Too high, too quick, these candles need some rest. I would like to see a candle reach 116.300 -which is the daily ichimoku and a monthly support- to envisage going long on a short-term trade. 

Otherwise, if this stretched market wants to retrace, it is possible that we see 104 since it is only the 38% retracement of the almost-uninterrupted rise since January of 2012.

At this point, obviously, the pair is unquestionably still bullish. Everything is pointing North, but lower highs and higher lows combined with low volume mean that you should stay away. 

One ideal scenario is to see 116.350, where you would have set a trap (with a stop), then the pair bounces towards 121.800 -with rising volumes-, and breach through it, closing a daily candle around 122. The next major resistance would be 124, which is the high made on June 1, 2007.

Happy New Year & Nikkei analysis

Quite a few days have passed since my last post. That’s what end-of-year vacations are for right? Anyway, I didn’t miss much action, or at least there was no real surprise.

The Japanese index started a selloff on the last trading day of 2014, right before the traditional 5-day “o-shôgatsu” vacation. There was probably some profit taking after an amazing year which saw the Nikkei jump 7.2% (1159 points). But there might be more.

Over the last few weeks, this market has been characterized by its lack of motivation, with very low volume constantly falling (volume fell from 1.932 billion shares traded on Monday 22 to 1.666 billion 3 days later).

On the chart, the Nikkei has made a lower high on December 25 at 17 950, and is now bouncing on its ichimoku cloud and monthly support around 16 600, making a higher low – maybe to get stuck in a consolidation pattern-. ADX at 18 shows again an important lack of conviction in this market. Again, 18 300 is the pre-Lehman crash high of 2007, which also was a double top and a RSI divergence -on a monthly chart- with the previous high of April 2006. With such low volumes, there is no way that the Nikkei can break above this.

Why are volumes so low, and can they climb again? 

Non-domestic investors are net sellers of Japanese equities in 2014. This year saw foreign investments into Japanese stocks fall 94% compared to 2013, which was the first year of Abenomics. Two facts to illustrate how big this is:

• Purchases by foreign investors were less than a 10^th of what they bought in 2013, making it the smallest amount since 2008.
• In April 2013 alone there was 3 times as much foreign investment in the Japanese stock market as all of the year 2014.

So who is still buying Japanese stocks?

Not individual investors. They have been net sellers for 4 consecutive years.

Data shows that, despite a weak yen making the Japanese market cheap, only domestic  trust banks and pension funds are buyers.

This can be understood as investors not believing in Abe’s super-short-term vision anymore, even though they did enjoy the party in 2013. So, unless Abe shoots his last arrow in the coming months, there is little chance to see foreign investors back in the game. The burden of keeping the Nikkei and Topix rising has to be borne by Japanese pension funds only.

If you look at 2014, it seems that Japanese banks and funds have had no problem lifting both the indexes. As foreign demand was drying up, Abe was filling the gap with state and pension-fund investments. The GPIF (the world’s largest pension fund) has more than double its allocation for domestic shares (according to Bloomberg, that translates into buying another ¥10 trillion of Japanese stocks), and the BOJ expanded its already huge asset-purchasing program, tripling investments in exchange-traded funds to about ¥3 trillion a year.

What this really shows is that Abe has no credibility but a lot of monetary power. But to what extent? As a reminder, his strategy to stimulate inflation is to pump endless amounts of cash into the stock market and to raise consumption tax. Can the Japanese government expand its QE program again and ask the GPIF to buy even more stocks? If they can’t, they will have to think of something on the long term: Abenomics  is supposedly made of “3 arrows”, namely monetary easing, fiscal stimulus and structural reform. The latter is still a no-show.

Anyway, trading-wise we are entering a period of consolidation with anemic volumes. There is absolutely nothing to trade here at the moment. Just wait and see if the Japanese index breaks above 18 100 or below 16 400.

Nikkei quick update - December 18, 2014

The Nikkei didn't go as far as 16 300 but rebounded on 16 400. If you had placed entry orders before this move, then you have caught some of these pips. Cool.
But what to do now? Wait for more? At the risk of losing some of these floating profits?

Well, as a general rule of thumb you cut your losses ASAP; and you let your profits run as long as possible.
But in this case, volumes are low, ADX is down and the holidays season is around the corner, so even if the Nikkei managed to reach 18 000 in the coming days, the chances that it goes higher are very very low. For me, I'm out.