Quote:
Originally Posted by Firewalker
Sounds like you did well. I was stuck long up at 110 from the false breakout but held it since I was certain we've go back through 110 at some point. Got out after the rally stalled. So I was playing little short hedges all week and did okay in the end.
I am not at all certain about the short @ 110.55. For now, I am only targeting a modest pullback towards 110 with orders in place for a continuation (in either direction).
I can see the Yen crosses correcting, but why would we see a rebound if the reasons behind the carry sell off haven't changed? I would think that if the Yen gives back it's gains, the USD would also lose its recent strength. It would mean money moving back into the other currencies, yes?
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Hey Firewalker,
There are long-term and short-term considerations for the health of the carry trade (just like fundamental and technical analysis). For the long-term, credit conditions are still very bad, writedowns are being subsidized by forced auction rate debt buy backs and the return on carry is shrinking. However, these are all lingering threats and the the market will start to lose its attention and fear of these fundamentals if nothing evolves out of it.
On the short-term we have seen Japanese GDP tumble - a strong fundamental factor. (at the same time rates are still looking up for the US, so there is no counterpoint there to strongly correlate the US dollar and yen). We have also seen risk appetite improve in other areas like equities, emerging markets, more risky debt, etc. This has been accompanied by a pull back in general volatility across the financial markets.
So given the stale feeling of long-term concerns, the improvement in short-term conditions and the relative 'oversold condition of most yen crosses, there is a reasonable argument for the carry group to rebound.
What do you think? Watching any of the yen crosses. I have been watching CHFJPY and NZDJPY (the later for a good place to short).
