Hello, my friends! This next week will be very interesting with some of the previous themes gaining momentum and new ones for us to explore. So let’s go to the business!
USDJPY – BULLISH BIAS
This time it’s not just JPY but we have some other elements aligning for a strong rally in USDJPY. JPY net position is now short, we also hand a big cut in S&P 500 short positions and to add big speculators also cut their longs. So looks like finally, markets are ready for a year-end rally in stocks funded by JPY sell and GOLD profits.
I prepared some charts, let’s take a look:
We all know the negative correlation USDJPY and GOLD have so I produced a chart of DXY normalized by USDJPY(DXY/USDJPY) against XAUUSD so we can see this correlation is true and also spot that the DXY/USDJPY leads GOLD movements. So how this relation (DXY/USDJPY) can go down!?
- DXY Drops
- USDJPY goes up
- DXY drop less than USDJPY
Well, we have an interesting scenario, big speculators turned short on JPY( long USDJPY) we also have and HUGE cut on XAUUSD net long positions, and you will see in after that CAD is gaining momentum too what can pressure DXY down. So yes! I think we have a case to go long USDJPY.
Also, check where USDJPY was when we had a similar scenario on its COT Data(changing from short to long)
And where SP500 was:
This reinforces my view in a GOLD drop and also aligns with a Trump political moment of delivering a year-end rally. We have a very important player giving signals that will ‘certainly’ cut short-term rates, this guy is Kuroda!
The Bank of Japan will “certainly” reduce short- to medium-term interest rates if it needed to ease monetary policy, Governor Haruhiko Kuroda said, suggesting that deepening negative rates will be the primary tool to fight heightening overseas risks. Source: reuters
So this is the zone and the pair that we should play long side! Like last week we played AUDUSD long, this we will do the same with USDJPY
CADJPY – Bullish Bias
Another currency that had a big increase in speculator’s long position is CAD this has a big relation with Trudeau party going ahead in election polls! But leaving politics out of this we have this big increase in their long positions and also they are far away from exhausting their buying capacity, lest time specs hold a 115k contracts long position on CAD against 82k now, so this can accelerate!
To illustrate this I marked in the chart the same exact place that I marked in USDJPY chart and I did that for many reasons, first because CADJPY is a cross-currency and can be produced by dividing USDJPY price by USDCAD, second both USDJPY and USDCAD is part of DXY index, so the outcome for USDJPY and CADJPY must be very similar and that’s exactly what this chart shows us!
So for the following weeks, I will hold a bullish bias on CADJPY and will also buy demands and supply zone breakouts!
CHFJPY – BULLISH BIAS
We don’t have COT data for it, but it’s possible to generate it using CHF and JPY data and what I saw this week is a massive cut in short positions this was also reflected in prices and we still have the JPY easing by Kuroda! Check the data!
As you can see speculators are betting against JPY using numerous currencies, but CHF is already getting shorted by big specs and I think the reason why USDCHF is not going up its because specs are changing their USDCHF longs for USDJPY and they are using CHFJPY as a rolling contract to do this and if I am right the CHFJPY bullish trend will accelerate and I don’t doubt we will 120 again!
So I am holding a bullish bias for CHFJPY!
COTTON – BULLISH BIAS
That’s it my friends! The commodity outlook will be discussed inside the chatroom, also all the demand/supply alerts are posted there, so if you are not with us yet join now! If after the first week you don’t like the service I will refund you and add 10% to the value!
I hope you have a great week of trading and you can profit from this report! If you need assistance you can find me in twitter @leohermoso