Last night the BOJ left monetary policy UNCH and downgraded its outlook for the Japanese Economy.  JGB Yields are expected to stay tucked in around 0% and asset purchases will remain at 80T yen annually. The BOJ has been at this for a while now and there seems to be no end in sight for its devaluing of the yen and interest rates. The yen is trading higher this morning, as its our contention that this was widely expected by market participants and likely priced into the market as the yen has slid over 400 ticks from its Jan 3rd high vs the Dollar of 0.009458.  The yen is trading 0.009030 +16 ticks on the day. We do believe this could set off a short covering bounce or a “sell the rumor, buy the fact” type trading action. Furthermore the yen carry trade is something we’re carefully watching as the U.S. Fed statement (due next Wed) will likely confirm their “wait and see” i.e. dovish approach to monetary policy.  It’s our contention that the yen can stage a recovery over the next few months vs the USD. 

Similarly to the BOJ this morning, the ECB downgraded their outlook to the European economy as well as struck an increasingly dovish tone towards forward guidance in monetary policy adjustments. Mario Draghi (ECB Chairman) also mulled the idea of additional stimulus – even in light of ending its QE asset purchases this past Dec.  This set off a nearly 200pt sell off vs the USD, but has since recovered as the US FOMC is now in the forefront of what traders are focusing on.  It our contention to continue to look at trading the Euro vs USD with a bearish bias in the near-term. 

Euro FX Jun ’19 Daily Chart

Euro FX Jun '19 Daily Chart

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John Caruso

Senior Market Strategist

Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. John made his move to the commodity industry at the end of 2005, and began his path at Lind Waldock, at the time the largest retail brokerage division worldwide. John did his undergraduate work at Robert Morris University in Pennsylvania from 1999-2003, where he was a 4 year varsity basketball letterman.  A self-professed “Macro Trader”, John uses a multi-factor fundamental and “quantamental” trading model in distinguishing market cycles based upon the accelerations or decelerations of growth and inflation metrics. His technical and quantitative approach is heavily reliant upon trend and market range analysis via a custom built standard deviation system in helping him make probability-based market decisions. John is an avid reader of all things pertaining to finance, and behavioral economics. Click here to sign-up for John Caruso's Trading Coach Insights. Daily information and insight on all futures marketsin ranging from metals to equities.

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