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Japan needs 1987 (Plaza Accord) Levels in 3-years to stimulate its economy. QE will Fizzle Out – April 5

April 5, 2013

 

GMT 5:22 – JPY @ 96.28 = We are witnessing correction in Yen and this drop could extend up to 95.85. However, if seen would sell Japanese currency around those levesl with STOPS 95.40 for another USD surge……….

GMT 3:07 – Following the footstep of FED, BOJ started acting in a very similar manner in a hope that Japan will soon overcome its 2-decade old suffering “Deflation” and will be blessed with revival of its economy. It has set a 2-year target to attain 2 pct inflation by doubling its monetary base in same period through longer maturities.The size should help to further weaken Japanese currency and we could see Yen entering 100-110 range, but I am not sure that how it will help its aging domestic economy, which should initially witness some domestic activity that could be temporary and short lived.

Because what Japan’s economy require is constant offshore demand for Japanese product for longer duration and when we talk of demand, debt ridden European and US economy cannot afford expensive Japanese stuff. These so called developing nations are themselves struggling for economic recovery and when we talk of cut in spending and reducing deficit then why and which country will buy Japanese product.

Germany considered engine of Europe is struggling to maintain its grwoth pace an hence cannot afford excessive buying of Japanese goods and overall EU has no room for luxury imports that could further dent its market and USA is no different. China could be the only hope, but then Japan will have to compromise on its island territorial issue with softer approach. India cannot afford too much of Japanese stuff, as China is well penetrated in the Indian market. India is also faced with high deficit and global economic recovery means higher oil prices, which could add pressure on import. Japan may succeed to increase its exports to Russia and Brazil, which may not be enough. Bottom line is that it may sound music to ears, but this may not be the case. In my view, even at 110 Yen per USD, JPY will still be overvalued. Japan will have to re-think and reconsider it currency valuation and should gradually move back to the Plaza accord rate, yes I am talking of 150 Yen per one-US Dollar, which is the the real cause of almost 20-year old deflation, or else I will not be surprised to see investors jumping in the band wagon to buy Japanese currency, as European woes will continue bother investors.

Meanwhile, after Draghi’s episode, which was nothing very unusual market is back to economic, as I said in my post that slowdown in USA is becoming evident. Larger weekly claims and poor ADP data further dented US Dollar and there is growing feeling that today’s NFP numbers could be bad too, which should support gold and currencies unless we get surprisingly better jobs data.

EURO @ 1.2923 = = Well, prior to NFP I am expecting Euro trading between 1.2880 – 12960, which chances of buying interest on dip. However, the key level today will be closing below 1.2840 on the down side and on the up Euro needs to close above 1.2980, though poor data could see the current move extending towards 1.3045.  
GMT 3:12 – GBP @ 1.5220 = GBP is a buy around 1.5200-10 for day trade with STOPS 1.5165, as it is likely to test 1.5250 probably 1.5270-80. But 1.5140 remains a key level to watch on downside.   
GMT 3:19 – GOLD @ $ 1551 = During the day I am expecting 4 1547 to hold for $ 1555-57 levels. The levels to watch today will be $ 1560-62, break would risk for a test of $ 1575-80 zones. A close above would delay down move. However, push below $ 1540 would confirm continuation of further fall towards $ 1520-25.
GMT 3:35 – JPY @ 96.95  = JPY will find sellers around 96.70 and is likely to hold above 96.20. However, next resistance level is around 97.7080, with next target 100.20.
GMT 3:38 – AUD @ 1.0405 = we have witness choppy trading, but I still see 1.0370-80 to hold for a test 1.0450-60. Apply stops if 1.0340 surrenders.

Catch me on Twitter @ asadcmka

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