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USDJPY’s major cycle reversal and BOJ Intervention

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USDJPY's major cycle reversal and BOJ Intervention 17

By Ron William, CMT, MSTA

JPY Intervention: The Third Strike!
After yet another JPY intervention by the Ministry of Finance, investors and traders around the world are questioning the “real” impact on the currency’s eternal price appreciation. The estimated ¥7 trillion injection used to counter the JPY’s record overvalued levels, which continues to hurt the nation’s export-led economy, was the largest on record, overshadowing previous efforts last seen in August.
USDJPY's major cycle reversal and BOJ Intervention 18

Indeed, the vast amount of government liquidity marked a large enough carbon footprint that saw USD/JPY rocket by over 400 pips in just a few minutes from new post-World War II record lows at $75.35. The net effect was largely positive for the USD, boosting the DXY (which allocates its second largest weighting of 13.6% to JPY). This also helped trigger a loud firing shot across popular risk proxies such as EUR/USD, AUD/USD and developed equity markets including the S&P 500, which all reversed sharply from key chart levels, back under their long-term 200-day moving averages.
USDJPY's major cycle reversal and BOJ Intervention 19

But will the third intervention strike this year by the Japanese authorities be enough to hold back the JPY’s painful appreciation? In the end, the price chart – “Mr. Market” – dictates the future, where “in the short-run, the market is a voting machine, but in the long-run it is a weighing machine” and market sentiment will ultimately decide.
Technical evidence suggests that although the initial reaction on the JPY, post intervention, was stronger than after previous attempts; the price reversals are becoming less sustainable each time. Without the compounding backdrop of a key change in the market cycle(mass psychology) and perhaps additional monetary-political support from G-7 governments, any benefits may only prove temporary.
The only lasting currency devaluation this year followed the earthquake in March and consequential multilateral intervention, which served as a double-positive of external influences on the JPY. (Note; event shocks, natural disasters or political wars, have tended to historically induce major price reversals in markets).
However, a review of Japan’s most recent unilateral interventions in August this year and September 2010 shows it took only 4 and 15 days respectively for USD/JPY to trigger a post intervention retracement (PIR) and new low (PINL). The fact that each intervention is having a decreased effect over time suggests the credibility of the Bank of Japan’s ability to influence the JPY has likely diminished for traders. History also teaches us that virtually all JPY interventions over the last ten years exhibit comparable short-term reversion and timing characteristics.
USDJPY's major cycle reversal and BOJ Intervention 20

USD/JPY Sentiment& Strategic Price Levels
USD/JPY remains bullish over the medium to longer-term, but in the short-term expect another post intervention retracement which may carve out a fresh new record low. This is also favoured by current sentiment measures which remain heavily skewed in the option market (based on 1 month 25-delta Risk/Reversals), which shows long call options at multi-year highs. Put simply, USD JPY buying pressure is still very overcrowded as everyone continues to try and successfully call the market bottom.

This may trigger a temporary, but dramatic,price spike (that would help flush out a number of large downside barriers and stop loss-orders), into psychological levels at $75.00 and perhaps even sub-$74.00. Keep in mind that such a scenario would also inspire another round of even stronger JPY intervention that would likely benefit from the price vacuum and assist their mandate of sustainably reversing the JPY’s trend.

Watch strategic upside price levels on USD/ JPY ahead of important cycle inflection points into November-December 2011;$80.00 (Psychological), then $82.00 ( post-G7 intervention high) and $83.30 (28th March earthquake high). All levels serve as very important bullish psychological triggers in the market.

Astute investors and traders might find additional diversified methods to manage risk/return exposure within option strategies, during what may continue to be a two-way, volatile market over the next 1-3 month horizon. High-probability option strategies include a “long straddle”, which would favour increased volatility (regardless of price direction) or a “long call” that would hedge for the likely upside breakout from USD JPYs multi-year wedge pattern.
USDJPY's major cycle reversal and BOJ Intervention 21

Major Cycle Reversal
Macro chart dynamics confirm that a major turning point is developing on USD/JPY. Long-term monthly charts exhibit a confluence of bullish evidence with our primary focus on the related 40-year Elliott Wave cycle and DeMark™ sequential/combo exhaustion buy signals.
USDJPY's major cycle reversal and BOJ Intervention 22

The 40 year long-term impulsive Elliott Wave cycle on USD/JPY is on the edge of a major upside reversal. Closer examination also illustrates a symmetrical time fractal of 16.5 years which is scheduled to end into this November-December 2011.
The expanded chart (right-hand side) illustrates DeMark’s bullish monthly reversal signal (Sequential & Combo), which was developed in late 2010. Although this long-term signal has not yet triggered the expected price upside reversal, we must respect that it has, thus far, managed to cap USD/JPY’s powerful decline.
A TD Price Flip and close above $78.79-80.56 (TD MA1-TD Ref Close), would be needed to trigger the major upside reversal higher. Only a sustained close beneath the $76.80-76.50 (TD Risk Line-TD Ref Close) would negate the bullish macro setup.

What are the best FX Trades to profit from JPY weakness?
The global market attention and potential major trend reversal will keep volatility high for a while. It might also be valuable to look at other relative currency opportunities against the Japanese yen, ratherthan only USD/JPY and EUR/JPY major rates.

Figure 7. illustrates a technical model which measures relative performance (based on proprietary momentum filters), across a basket of FX rates against the Japanese yen. Each quadrant represents a market’s cycle, rotating clockwise, from “leading“ to “weakening” and “lagging” to “improving” stages.
USDJPY's major cycle reversal and BOJ Intervention 23

The results derived from this unique visualization of market relative performance over time tells us that high-yielding currencies such as TRY, BRL and ZAR are setup to gain most from JPY weakness (positioned within the upper right “leading”quadrant). All three markets exhibit strong bullish mean reversion characteristics from extremely undervalued levels against the JPY.
USDJPY's major cycle reversal and BOJ Intervention 24

Conclusion
USD/JPY remains bullish over the medium to long-term, but in the short-term expect another Post Intervention Retracement (PIR) as the credibility of BOJ’s third strike attempt this year to reverse JPY diminishes with traders. Sentiment and liquidity measures also suggest that USD/JPY buying pressure is still very overcrowded as everyone continues to try and successfully call the market bottom. This may lead to a temporary, but dramatic spike into the psychological levels at $75.00 and perhaps even sub-$74.00.
In the end, “Mr. Market” will decide USD/JPY’s fate as the rate edges closer to its40 year long-term cyclical reversal (which will trigger a major change in mass psychology). This will also mark another wave of change in global safe-haven flows, which has traditionally been attracted to the JPY and previously CHF and Gold. In a relatively weak beauty contest, the USD, which has been at a polar opposite technical setup at historic lows, will continue to gain from this domino effect, as capital searches for a new safe home.
USDJPY's major cycle reversal and BOJ Intervention 25

However, in the short-term, USD/ JPY will remain a “house of pain” trade, marked by two-way volatility. Astute investors and traders might additional methods to manage their risk-reward exposure through option strategies. Watch strategic upside price levels on USD/ JPY ahead on important cycle infection points into this November-December 2011; $80.00 (Psychological), then $82.00 (post G7 intervention high) and $83.30 (28th March earthquake high). In relative terms, high-yielding currencies such as TRY, BRL, ZAR, are setup to gain most from a massive unwind of the popular carry trade.

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Why brands harnessing the power of digital are winning in this evolving business landscape

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Why brands harnessing the power of digital are winning in this evolving business landscape 26

By Justin Pike, Founder and Chairman, MYPINPAD

Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.

As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.

As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?

Digital is an essential survival tool, and even more so in a COVID world

No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.

In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.

Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.

The challenges that rapid digital transformation brings to businesses

Justin Pike

Justin Pike

Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.

Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.

The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.

As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.

But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.

A digital world post-COVID

Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.

There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.

Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.

Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.

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Brexit responsible for food supply problems in Northern Ireland, Ireland says

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Brexit responsible for food supply problems in Northern Ireland, Ireland says 27

LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.

British ministers have sought to play down the disruption of Brexit in recent days.

“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.

The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.

(Reporting by Guy Faulconbridge; Editing by Tom Hogue)

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2021: a new tipping point for digital commerce

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2021: a new tipping point for digital commerce 28

By Damien Perillat, SVP Digital Commerce at Worldline Global

2020 was a year of significant change for all of us, impacting businesses and their customers heavily.  While several industries struggled, the demand for digital commerce and alternative ways to pay took off as nation-wide lockdowns meant customers needed to shop from the safety of their homes. This forced many businesses that previously relied on their bricks and mortar stores into the online space. And now, consumers are increasingly comfortable with ecommerce being a crucial part of their shopping experience – even those who were previously reluctant to adopt a digital life. It took ecommerce 20 years to reach about 15% penetration of consumer spending and in just a few months we jumped five to ten years forward. This isn’t likely to change in 2021.

Even in physical stores, customers are looking for safer alternatives to cash and chip-and-PIN payments. UK Finance revealed that contactless spending was up 18% across the UK in September last year when compared to the same time in 2019 – 64 percent of debit card transactions and 46 percent of credit card transactions were contactless. The use of digital and contactless payment methods will be much more widespread in 2021 as we enter this new normal.

K-shaped economic recovery will continue

With that said, economic recovery won’t take place at the same rate for everyone. Different industries have been impacted in their own unique ways by the pandemic. Leisure and travel continue are ranked as the most one missed activities by consumers and the first signs of recovery will be in the form of an increase in domestic and regional travel.

At the same time, the way consumers are interacting with different industries has changed. For example, millennials are looking for more experiential holidays with strong social aspects, where they can make a positive impact on the destination and people they are visiting. And, younger generations are displaying more conscious buying behaviour, focusing on sustainability.

Other industries have faced difficulties throughout the pandemic. Challenged with economic uncertainty, customers have cut back on spending on non-essential, luxury items, instead favouring spending that has enabled low-touch and home-based activities, such as food delivery, electronics, home entertainment and online marketplaces.

A shift in payment preferences

What has been uniform across many industries though, is that consumers now have high expectations surrounding not only the user experience (UX) but also the payment process itself. They anticipate an easy shopping experience where payments are almost invisible. Having the right payments mix will therefore be the key ingredient for success this year for many. Companies will need to ensure that their payment processes are fast, simple and frictionless as online checkout experiences have been raised to the next level.

At the same time, demand for digital goods and services surged last year as people were stuck indoors during lockdowns so purely digital players benefitted. By the end of Q3 2020, Netflix had a huge 195 million subscribers registered, while from February to June, Zoom saw a 677% increase in usage – attributed to increased remote working.

Clearly the digital transformation boosted the subscription economy, and that didn’t stop at just digital goods. People took to subscription services that regularly delivered anything from food to supplies to their doorsteps. This has been a much safer and convenient way to purchase goods during the pandemic.

So, with subscription services establishing a foothold last year, 2021 will be the time for businesses to invest in understanding the dynamics of what a truly optimised subscription payment customer acquisition looks like.

More online payments means more online fraud

Last year it wasn’t all plain sailing for everyone operating in the digital space. The increase in online payments presented more opportunity for fraud to take place and that’s exactly what happened. Between May and July 2020, when certain lockdown measures were eased and customers became more willing to spend, fraud volumes rose 61%, according to figures published by Barclays Bank.

Damien Perillat

Damien Perillat

Similarly, chargebacks became more prevalent. When shops are more reliant on deliveries than ever before, there is more opportunity for things to go wrong with orders and customers to be dissatisfied with what has been purchased. Fraudulent chargebacks have also become much easier to commit as it is increasingly difficult to prove when deliveries arrive safely.

Therefore, in 2021, not only will it be important to have a frictionless UX, but security measures must be effective without impeding on checkout processes and refund management will remain critical.

Going global

Greater risk of fraud didn’t stop businesses from embracing their new-found digital capacities while physical stores were closed though. Many have ventured into international territory with the aim sharing their services with other countries around the world.

This year, focusing on high-growth markets such as India, Brazil, Russia, and China will be hugely beneficial for companies looking to operate internationally and we could see cross-border sales continuing to take off in these regions. South-East Asia and Latin America have some of the greatest potential for digital commerce growth and I would urge those operating across borders to consider offering services there.

Key to achieving this is the ability to provide payments services that meet the needs of customers in different localities. Worldline research has found up to 42% of customers are likely to drop off and search for an alternative website if their preferred payment method is not offered at the checkout. Therefore, businesses must integrate with payment networks in different regions to provide locally relevant payment methods.

Yet, the web of complexity is increasing for online merchants, especially for those that want to expand internationally. As such, next year we can expect to see the growing popularity of payment solutions that seamlessly support the international reach of consumers and that enable businesses to integrate with local payment networks, while minimizing the need for local establishments and resources.

In a similar fashion, supply and logistics is becoming more localized. Lockdown measures hugely impacted supply chains around the globe and businesses resorted to new sourcing strategies and business models which will continue to be used this year.

Facing up to the change

2021 will be another extraordinary year for many businesses, as the world begins to find its feet again following COVID-19. Businesses must assess their position in the market and ability to meet the changing needs of customers’ when it comes to preferred commerce and payment methods.

Not only will this be critical when operating in the bustling online space, but it gives them scope to diversify, bringing in new revenue streams as we face the current economic downturn. When used to their full potential, payments will also ensure that companies can continue expanding online and abroad, even if the economy is going through a long K-shaped recovery period.

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