A.M. Observations

In addition to the PBoC liquidity injection last night sending futures up following the carry trades which were following the weak Yen, we had some other Central Bank news, this time in the US and courtesy of the F_E_D's unofficial mouthpiece, John Hilsenrath of the WJS who writes overnight that the F_E_D is on track for the next taper of another $10bn as soon as the January 28/29 meeting. I can't say I'm surprised, they've been looking for the exit for well over a year and it seems even with weaker jobs numbers in a seasonally adjusted period, they are going to stick with the line that economic recovery is proceeding and as such, so is the taper.

Of course the main mover last night was the $255bn CNY injected by the PBoC via 7 and 21 day reverse repos. It seems there's a threat of a potential Trust Default on Jan. 31st which makes sense with the injection being stacked on the 21 day RR side. Adding to the question of why which comes after the knee jerk reaction higher last night, a head researcher at the Chinese Academy of Social Sciences says China will see ,"Trusts and Shadow Banking will see defaults this year".


Even though we will gap higher, the USD/JPY did not break the technical level of $104.91 which would have set off technical buying and more important, as expected, the Yen's reversal process looks to be solidly in place.

This is the same chart of Yen futures as last night, except now it has migrated from 1 min to 5 min, the rounding process is larger, the 5 min positive divergence is large and leading positive. To me, this looks fairly well developed and pretty close to being proportional given the preceding action. We'll see very soon, I'm betting it's about to flip.