Fed’s done, BoJ takes over…

Here we are, a couple of days after the Fed announced the end of QE3, the Bank of Japan took over and raised, by a 5-4 majority vote, its bond-buying program from 70tr to 80tr Yen (and tripled its purchases of ETFs to 3tr Yen).

Just a few days after Governor Kuroda’s confusing speech (‘BoJ isn’t trying to cause negative rates’, ‘BoJ trying to use easing to lower yields overall’ and ‘negative rates in market reflect BoJ’s strong easing’), the market was surprised on that reaction.

The Nikkei index soared 1000pts and reached a new 7-year high above 16,500 (before closing at 16,413.76), the 10-year JGB yields are still trending lower (now trading at 45.8bps) and USDJPY is now up 250 pips, trading [also] at a 7-year high at 112.40.

Carry trade currencies (Antipodeans) benefited from that announcement, with our favourite AUD/JPY approaching the 99 level (back to May 2013 levels slightly before the famous Taper effect).

Equities are still recovering in Europe and UK and should also be in a nice green mode in the US; S&P500 Emini futures Dec2014 contract is back above the 2,000 [again], now trading at 2,011 (How long will the equity market hold above that psychological level?). Another surprise was gold (purple line, reversed axes), which participated to the ‘global move’ and broke its strong support at 1,180 and now trades at levels not seen since 2010.

sg2014103145888(Source: Bloomberg)

EURUSD is now playing with the 1.2500 support while Cable touched a low of 1.5950 (1.5850 is the strong support to look at, therefore the sell – off could in the short term).

My views go for a still short EUR/GBP, targeting the 0.7750 retracement (decreased the stop loss to 0.8000, which was my entry level). Be careful about the USD strength again, which seems to be traders’ favourite currency to hold at the moment, aka ‘don’t fall in love with you long dollar position’. Remember that the Fed is against a sharp appreciation of the US Dollar; policymakers want the move to be slow and gradual.