Forex Investment and Currency Trading

GBPJPY…..another movie sequel (The movie in question being Halloween II although Flipper II is also a valid choice.)

•  The chart above shows the amazing similarity to the recent price action in GBPJPY and that seen between late August and early November as we hit the top of the 11-month channel.

“The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”
(FOMC statement on 31 October 2007)

However, many participants (noticeably more than January) saw the upside risk to inflation as greater than the downside risks to inflation.
The Committee agreed that that the statement to be released after the meeting should take note of the substantial policy easing to date and the ongoing measures to foster market liquidity. In light of these significant policy actions, the risks to growth were now thought to be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth.
(FOMC minutes of April meeting released on 21 May 2008)

• There is no doubt that the misguided statement of Halloween has been followed with equally misguided statements in recent days that are yet again going to come back and haunt the Central banks (FED in particular)
• As a consequence the expectation is that the rise in yields to run out of steam and Equities to come under increasing pressure. GBPJPY is the cross most closely tied to USDJPY and USDJPY trades very closely to Equities and yields.
• The chart above suggests much lower levels in GBPJPY and as a consequence much lower levels in USDJPY is expected also.

Overlay of GBPJPY and USDJPY- Did anybody say …Re-test of the lows???

 Overlay equal weight of U.S. 2 year yield and S&P with USDJPY

•  we see lower 2 year yields and lower equities we will see a lower USDJPY.