Daily GBP/JPY analysis

jest1081, I thought that Pound has taken enough breather before last Friday.

Hi,

It was technically speaking. On the daily looks like a good short entry...infact, i already placed my short straddle at 238.9. The Indicators and price are already showing strong divergence which came thru (confirmed by friday candle)...a trendline break could probably confirm a retracement trend.

The Yen Outlook and Carry Trades

The BoJ's inflation report last week, which slashed inflation expections to the bone for this year, is bound to have some far reaching implications. Besides the too low inflation numbers seen there, other recent reports showed factory output fell, retail sales declined for a sixth month and household spending rose a less-than-expected 0.1 percent. The unemployment rate held at a nine-year low of 4 percent.

This leads to where the real problem is for Japan-the Japanese consumer. For a nation with high employment, increased prospects for jobs and increasing corporate profits, consumer spending is growing at a very low rate. The main reason for this simple; wages in Japan have stagnated and untill the consumer sees some growth in those wages (and in real GDP), consumer demand (and prices) will stay low.

This is the main difference between the US and Japanese economies now-while American consumers are spending all they can, Japanese consumers are saving all they can. Japanese consumers have liitle faith in goverment pension systems and US consumers have too much.

How Does This Figure for the Carry Trade System?

Very good actually. Little or no growth in consumer spending will prevent the BoJ from raising rates for some time to come, but there's more to it then that. The Japanese are desparate to keep the Yen weak for two other reasons-exports and the inflationary pressure a depreciated currency tends to exert on the economy. Right now Japan needs some inflation.

Unless something major happens that causes a big upsurge in risk aversion, the JPY crosses figure to appreciate further. They pattern is likely to be a repeat of what we've recently seen: Temporary pull-backs on profit taking followed by a fresh round of buying.

The carry trade is indeed very alive and very well.

newstrader
what affect do you think the chinese economy and possible rate hike will have on this analysis?

Short-term? Maybe a little. Longer term? None.

thanks!

Very well said Matt tnx...

What is carry trade?

Google is your friend. You'll find all sorts of explanations with a simple search...

In short though, it is when traders borrow a currency at a very low interest rate to invest it in higher yielding currencies. The idea is simply to make money off the interest rate differential. In the case of the JPY, the interest rate is so low that going long on a pair such as AUDJPY, you can borrow the yen at 0.5% yet buy AUD at 6.25% (or whatever their rate is, I forget). By just holding the currency pair, you can potentially make a great deal on the interest rate differential alone.

can someone tell me if GJ has covered the weekend gap?

Yes gap has been filled

I don't show that the gap was filled. On my charts it was from 238.62-238.67. ??

Yea pretty safe to say its been filled i wold think, gapping is a manuever to catch stops or jump through res/sup areas without having to absorb the buying or selling. u can really see its working nature on stock charts. But the market didnt really gap, this is just difference of price over the different opens on platforms.

Better keep an eye on China... again... well, always...

China seems to be always bad news for carry trades.

05:52 **EARLIER FROM CHINA**China raised required reserve ratios by 50bp to 11% on Sunday, the second such move this month, in an effort to slow credit and investment growth. Shanghai stocks initially sold off, but then recovered to end up 1.85%. We think markets expect further tightening from China.

Today is really exciting so far....when are we going to see some movement?

I've seen funerals more inspiring in what concerns to GJ. Trading is being USD-related so far and it will go on until Chicago PMI...

Then carry trades may takeover following NYSE, hopefully up...

I'm back to my old days of Long GU, UJ, GJ. So want to see UJ @ 120.00 because this 119.80 level scares me a little yet.

USD and GBP getting sold off for yen before the fix. I'll wait to see what happens before jumping in.

Very strange things happending to USDJPY and GBPJPY. The news is affecting many pairs logically (like EURUSD, GBPUSD) but yen crosses are suffering transmission errors. What is going on? News not strong enough, carry takes over?

Dow Jones coming above water after opening down....

Let's see if GJ will respond today...

Interestingly enough though, although I am in a long and in profit I am wondering how far up this can go. On the hourly getting to the top on the RSI and MACD....