Naoto Sakatani Real-World Trading 2017-09-09 13:57
Streamer: NSJ

"Dollar/Yen: How will the week starting September 11 unfold?"

Point: "Politics," "Economy," "Geopolitical risks"
The three-way turbulence in September continues.

First, "Geopolitical Risk".
Following North Korea's nuclear test on the 3rd,
Kim Jong-un's rampage and provocative actions show no signs of stopping.
Tensions in U.S.-North Korea relations remain high,
and as President Trump has said,
the red line (possession of an ICBM capable of carrying a nuclear warhead)
has almost been crossed. If North Korea were to
launch an ICBM toward areas around Guam in U.S. territory,
Defense Secretary James Mattis (who until now

had emphasized dialogue) has warned that
military action could be possible.

If hostilities on the Korean Peninsula begin, first there would be safe-haven buying of the yen,

and if that conflict expands into a Second Korean War,
and if it appears that it could escalate, there is a high probability of rapid yen selling, so stay cautious.

In politics, the three September risks to watch are:
1. The U.S. federal debt ceiling issue due on September 29,

with the possibility of U.S. Treasuries defaulting
2. The U.S. FY2018 spending bill due on September 30,
with the risk of a U.S. government shutdown
3. Before this spending bill, the need to pass tax reform legislation
and last week the first item was resolved,

which greatly increased the likelihood that the Trump administration's
tax reform bill would be debated and passed swiftly.
However, regarding the three-month extension of the federal debt ceiling last week,
some say it will be difficult for the tax reform bill to pass,
as Republicans who had demanded six months were bypassed and
President Trump compromised with the Democrats,
and at the time of voting some Republicans voted against it.
So the chances of passing the tax reform bill are questioned.

On the other hand, if this happens, President Trump could win support from Democrats,

so pay attention to the next "Tax Reform Bill" debate.

If it passes, of course it would be dollar-buying.
Speaker of the House Paul Ryan has said that a corporate tax cut to around 22.5% is a realistic figure,

while President Trump insists on 15%,

and intra-Republican divisions raise concerns, which, if it affects governance, would be dollar-selling.

In addition,
1. The U.S. is being hit by multiple hurricanes, affecting the U.S. economy,

which is itself dollar-selling.
2. The replacement for Chair Janet Yellen by January,
and if the person chosen aligns with Trump's wishes and Mnuchin persuades her to stay,

a stay would mean dollar-buying; if another candidate is chosen, a slight dollar-selling may occur.

Moreover, the fact that the next chair candidate has not been narrowed down yet

at this time is a dollar-selling factor due to policy uncertainty.
3. Technically important is that it has broken below 108.00,
and the chart looks like a very bad shape.

Therefore, there is no situation to buy USD/JPY. The resistance near the return rallies is a good place to sell.

CME Currency Futures Positioning: as of September 5
(September 5) (August 29) (August 23)
Yen: -72,945 -68,524 -74,086
Euro: +96,309 +86,519 +87,976

CFTC Chicago IMM:
Short-term speculative and investor net yen short positions increased this week.

The all-time net yen short position was -188,077 on June 26, 2007.

Chicago VIX Index:
An index measuring the level of fear in the market,
12.12 (vs previous day +0.57)
The 2016 high was 32.09, the all-time low was 8.89 in 1993,
the most recent low was 9.39 in 2006.

Dollar Index:
An index showing the dollar’s movement against major currencies,
91.35 (vs previous day -0.31)

Last week it traded in a range around 110.50.
On the 4th: 109.37 – 109.93
On the 5th: 108.62 – 109.83
On the 6th: 108.44 – 109.39
On the 7th: 108.04 – 109.26
On the 8th: 107.31 – 108.49

Technically, on the daily chart, the Ichimoku components show
Leading Span 1 at 111.65, flat
Leading Span 2 at 111.59, slightly downward
Baseline at 109.17, downward
Conversion line at 108.98, downward
The spot price line is at 107.78 as of the close on the 8th.

Technically, since July 21, the configuration has been "price line < Tenkan-sen < Kijun-sen," signaling a bear market; the chart shape is extremely poor.

Looking at the bigger picture on the monthly chart,
from the October 2011 low of 75.33 to the June 5, 2015 high of 125.85, that is Wave 1 up,

from the 2016-06-24 low of 98.90 to the 2015 high, that is Wave 2 down,
now we are in Wave 3 up from there.
In this scenario, upside targets are
NT value = 98.90 + (98.90 - 75.33) = 122.47,
N value = 98.90 + (125.85 - 75.33) = 149.42,
V value = 125.85 + (125.85 - 98.90) = 152.80,
E value = 125.85 + (125.85 - 75.33) = 176.37,
as projected.

On the mid-range, looking at the weekly chart,
from the June 24, 2016 low of 98.90
to the December 15, 2016 high of 118.66, Wave 1 up,
from there to the April 17, 2017 low of 108.12, Wave 2 down,
and now we were in Wave 3 up, rising, but
yesterday, September 8, a large drop to 107.31

cast doubt on that assumption,
and now I view the decline from last year's December 15 high of 118.66 as Wave 2,
and that decline continues.

The lower targets are calculated on the daily chart as follows.

Looking at the daily chart now,
from the December 15, 2016 high of 118.66
to the April 17, 2017 low of 108.12
Wave 1 down; from there to the July 11, 2017 high of 114.49

Wave 2 up; now we are in Wave 3 down from there,
and the lower targets are

NT value = 114.49 - (118.66 - 114.49) = 110.32, reached
N value = 114.49 - (118.66 - 108.12) = 104.06,
V value = 108.12 - (114.49 - 108.12) = 101.75,
E value = 108.12 - (118.66 - 108.12) = 97.60,
and that is the projection.

Key point: the current movement's center value is seen at 111.50,

so even if it pushes down to 108, it will not break below 108,
forming a base around 108 and returning to 111.50 is anticipated.

The subsequent path is upside targets around 115,

since 115 = 111.50 + (111.50 - 108).

In other words, as long as the center value 111.50 governs the market,

the lower bound is around 108 and the upper bound around 115.
Therefore, in the current action, the downside should halt near 108,

then a rebound to test 115 was anticipated, but

yesterday, September 8, these support lines were breached.

Hence, the near-term focus is on how far the ongoing down move from the July 11, 2017 high of 114.49 will push,

and watching that closely.

In any case, the chart shape is extremely unfavorable, so a higher probability of further downside is expected.

Upside targets are,
1) the down-trend turning line 108.98 and the corresponding baseline 109.17,
2) the previous highs on Aug 31 (110.67) and Aug 16 (110.94),
3) the central value "111.50",
whether a recovery and breakout above this is a key point.
4) Leading Span around 111.59–111.65,
5) the July 11 high of 114.49,
6) the March 10 high of 115.50

Lower targets are,
If the central value "111.50" functions, the lower limit is 108.00.

A key point is whether 110.00–112.00 can be supported.

And because the bottom could not be avoided at these price levels,

1) first, the milestone 105.00,
2) 101.18 on November 9 last year,
3) 100.05 on August 26 last year,
we should be prepared for further downside exploration to these levels.

Forecast range is 105.00~110.00.

Naoto Sakatani Real-World Trading

Monthly fee: 5,000 yen

USD/JPY: What will the week starting September 11 be like? [Naoto Sakatani Live Trading]