BOJ Adds 30% to QE, US Equities Hit All Time Highs – Nov. 2, 2014
BOJ Goes Full Blown Retard, “Anything To hit 2% inflation”
Well so much for the BOJ being concerned about the cost of a weak Yen on its population. As they have now committed to buying every bond issued by the Japanese government per month plus another two trillion Yen worth we have seen the official start of the currency war everyone has been talking about. I admit it actually started years ago but now we are getting into full swing and its only appropriate that the Japanese get a jump start. Since they have been fighting the deflationary spiral for more than two decades now, following the example set by the US, Europe, China, Argentina and Zimbabwe its only common sense that this could never end well. The $64,000 question is when will it end? At this point its any bodies guess and all will likely be wrong.
The reason is there is a new dynamic to this round of money printing. In the case of the Weimar Republic (Germany 1920s) it only took three years before you needed a wheel barrel to carry all the cash needed to buy a loaf of bread. However the hyper inflation had also started within the first year of the monetary debasement. The same is relatively true with Zimbabwe in the 1990s. However today we have seen many countries around the world debase their currency for many years concurrently and have seen absolutely no sign of hyper inflation yet. Why is this? Hyper inflation should have started in Japan years ago according to Kyle Bass. Im not knocking Kyle in the least but there was one thing he didnt figure into his Japanese hyperinflation model. That was the simple question of “What if everybody else were debasing their currency at the same time?” Then again how could he know they would?
I have to admit that I see Kyle as a much smarter guy than myself and I am looking at this in hind sight but in the interest of keeping a very long story short. This could go on for a very long time before we see any true panic causing the big correction the world needed in 2008. The reason is simple. Globalization. Even though there are signs of globalization starting to crumble, the elite in countries all around the world still need each other to keep up the facade or they all lose. And not just their wealth but potentially their heads as well. They will all hold together until the very end.
The wild card here is the people. When the common person on the street loses their rag in vast numbers, then the jig is up. Yes there has been some scuffles but these are very small and have been well contained by local governments. The big boys will panic when the people stand up for what is right in numbers of 100-1000 times what we have seen as of yet. Pretty much when the nudging wears on the people Max Kieser talks about in the episode posted in the October 29th commentary. The other wild card is Ebola. They better get that under control or things could get ugly much quicker than they think.
On to the charts
EUR/USD Moves Down On USD Strength
With pretty much all stock indices rallying around the world on fresh BOJ printing. The EUR/USD moved down on USD strength as US equities have the best day in a long time reaching all time highs once again and even get the highest daily close ever on the Dow Jones. Now the US is the cleanest dirty shirt, at least for the time being. This goes again to my point above in that it don’t have to be the Fed printing in order to push US stocks up.
At this point there isn’t much reason to have a bias on direction for this pair other than the fundamental picture of Europe is in the crapper and the US looks better. I can find two large pushes down to support it with price action but I also see three pushes over Thursday and Friday being around 90 pips each. I will admit I will prefer a short here today but if there is a clear stop run to the lows and I am not short waiting for the break then I will be willing to take the risk entry for the pullback. The 1.2497 is a significant daily low so it has potential but if it breaks it could be big potentially running to 1.2268 after a hesitation at 1.2403. With no desire to close the gap this morning the open or Asian highs at 1.2512 will be a good place to start looking for the short during London. Otherwise Fridays close at 1.2521 could be tested as well as they try to push out weak shorts and close the gap.
GBP/USD Holding Steady
With the UK being the second cleanest dirty shirt its fitting that it not be as weak as the Euro at this point. Since we do have a two day chop I will be open on direction for this pair as well. It has made a better attempt to close the morning gap so I suspect if they are going to push it down they will run stops to Fridays high of 1.6010. If they cant do that during the London session I will be open for the short at 1.5989 or the Asian highs. Any entry in the middle of the range is more risky so I will need at least a couple trapping patterns to short below Fridays highs. Otherwise I will be open for the long around 1.5955 if they push up during London and I miss the short. However waiting for a test of 1.5941 before considering a long is a safer trade.
EUR/JPY 300+ pip move on BOJ Announcement
I cant tell you how much I wish the EUR/JPY set up during Asia Friday. However it just wasn’t there even though the scuddle butt I mentioned in Fridays commentary was they were going to increase the QE program. However scuddle butt is nothing to take an entry on and like I said the last time the Yen has reached those levels they talked of how the weak Yen was hurting consumers. It could have gone either way. With this move we have no choice but to remain open on direction. Having said that there are more reasons for a next push up. First is the efficiency of the move above 139.00 meaning if they want to close the inefficiency below they have to pull back over 230 pips to do so. I have my doubts on that. Second is the large gap up that has almost closed on lowering volume. If it can manage a clean set up this morning I will take the long around Fridays highs providing at least the USD/JPY agrees. The problem could arise in EUR/USD weakness so I will be cautious. Otherwise they could run stops below 140.00 or find support at 140.60 as well. I will also be open for the short at the Asian highs during London providing I don’t get a long entry this morning. There is a significant monthly high at 141.18 that has held for now.
The calendar start off with Italian, French, German and Euro Zone Manufacturing PMI data. Expectations are for flat figures but I see a better chance for disappointment than improvement. The big ones are Germany and the EZ. If either disappoint then we will see more Euro weakness and the opposite if by chance they do surprise to the upside. Thirty minutes later is UK Manufacturing PMI data as well. Expected to drop to 51.2 a disappointment should see the GBP/USD make the break down. If it does miss to the upside the GU will more likely hold the range.
The NY session has US ISM Manufacturing PMI data expected to drop slightly. As long as this release is close it wont do much on the USD strength providing there isnt a big surprise up on the European and UK figures.
Aussie traders have Retail Sales and the RBA Rate decision during Asia tomorrow. I doubt the rate will change but the statement could get the AUD pairs moving significantly depending on what they say. Trade the set up and be careful.
Be sure to watch Inside Job in the October 31, 2014 commentary. Its a must watch. Sorry it took all day Friday to get loaded.
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