Thread: Discuss USD/JPY, GBP/JPY, and other JPY Pairs

The ratio of long to short positions in the USDJPY stands at 2.47 as nearly 71% of traders are long. Yesterday, the ratio was at 2.07 as 67% of open positions were long. In detail, long positions are 16.3% lower than yesterday and 5.3% stronger since last week. Short positions are 29.9% lower than yesterday and 42.0% weaker since last week. Open interest is 20.7% weaker than yesterday and 26.6% below its monthly average.

During this week, USDJPY volatility as implied by one month USDJPY options climbed to 18 percent, nearly two times the average volatility of the past year

During this week, the Japanese yen staged a spectacular rally against the world’s most traded currencies as losses linked to subprime debt pushed investors to pare holdings of higher-yielding assets funded by loans in Japan. Moreover, USDJPY volatility as implied by one month OTC options climbed to 18 percent, nearly two times the average volatility of the past year

As a result of this carry unwind storm, the DailyFX Dynamic Carry Trade Basket fell by nearly 1289 pips during the last week. The portfolio biggest losses were taken in the long positions we held in the Australian dollar (468 pips), Sterling (422 pips) and in the Short position we have in the Japanese yen (84 pips). A small share of the portfolio losses were offset both by interest payments and by gains in the short positions we held in the Swiss Franc (+87 pips).

On Friday, the Federal Reserve gave us some reasons for "Carry Trade" optimism in the week ahead. The Carry Trade portfolio recovered some of the losses after the Federal Reserve Board approved a 50 basis point reduction in the primary credit rate to promote the restoration of orderly conditions in financial markets.

AUDUSD (0.0466) 0.79721 0.0062 |||||||||||||||||||||||||||||||.79%
USDJPY (4.0090) 114.364 0.4930 |||||||||||||||||.43%

On Aug-29, dollar/yen will conclude a 68 week cycle commenced May 2006. Last week's fall was simply the cycle down to its low price node. Therefore between now and then, we could see a pullback to 115.25 prior to a retest of the lower levels. Those levels are specifically 111.43 and 110.64. Around that date, there would likely be a more sustained uplift in the pair to commence the next long cycle, however, it is better to take one day at a time and there is no guarantee that the price low will be affirmed at these levels.

Originally Posted by terton

we could see a pullback to 115.25 prior to a retest of the lower levels.

Good Morning, USA! While y'aall were sleeping those of us in Asia and London were making money! 140 pips on dollar/yen to 11552! Looks like you missed it for the day, hehe

The pair continues to trade essentially as a proxy for equity market movement and if DJIA strengthens further will likely move up. But if we dip below 13K once again the 111 lows are likely to be retested.

Appetite for carry seems to be reemerging.
The yen is weaker across the boar and global equity markets are strongly up
For instance, on Monday, the Nikkei 225 bounced back over 450 points

AUDJPY 91.843 0.6550 ||||||||||||||||||||||||||||.72%
GBPJPY 227.661 1.0690 ||||||||||||||||||.47%
CHFJPY 95.067 0.4030 |||||||||||||||||.43%
CADJPY 108.267 0.3520 |||||||||||||.33%
EURJPY 154.534 0.4350 |||||||||||.28%
USDJPY 114.676 0.3120 ||||||||||.27%
NZDJPY 79.723 0.1140 |||||.14%

According to our dealing data, the ratio of long to short positions in the USDJPY stands at 2.03 as nearly 67% of traders are long. Yesterday, the ratio was at 2.47 as 71% of open positions were long. In detail, long positions are 2.2% lower than yesterday and 13.3% weaker since last week. and 13.8% weaker since last week. Open interest is 3.8% stronger than yesterday and 21.2% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

The ratio of long to short positions in the USDJPY stands at 2.08 as nearly 68% of traders are long. Yesterday, the ratio was at 2.47 as 71% of open positions were long. In detail, long positions are 0.6% higher than yesterday and 10.8% weaker since last week. Short positions are 19.2% higher than yesterday and 13.5% weaker since last week. Open interest is 6.0% stronger than yesterday and 19.7% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses.

Surprisingly, in the last 2 decades, carry trade performed the best when the fed was cutting rates.

The attached graph, plots a G10 carry trade basket, the Dow and the fed funds O/N rate.

When the Fed was cutting rates on 2001 the strategy had its best run because suddenly we got short USD.

The USDJPY pair has pulled back compared to the advance seen in the overnight to test support at the 114.00 psychological level. A bounce here would see the market attempt a test at the 115.13 38.2% fib from 119.68-112.07 bear wave with further momentum for a key touch on the 115.50 resistance. Should the pair break through the 115.49 session high, we are inclined to side with a wave extension up to the 116.00 figure, in line with the larger wave 2 as per our assessment last week.

68% of retail traders are long USDJPY (long to short ratio is 2.09). Moreover, since last week, retail has been aggressively buying USDJPY (long positions are up by 5.3%). In the past, when retail was long and buying more, the USDJPY has sold off in the following days. The SSI gives us a STRONG SIGNAL TO SELL USDJPY.

Carry trade seems to be gaining some momentum.
Do you think we will see more gains in the week ahead?

Originally Posted by Antonio Sousa

Carry trade seems to be gaining some momentum.
Do you think we will see more gains in the week ahead?

I think as long as volatility remains a little quieter and we avoid any major market moving news, carry trades should pick up this week. However, the gains may only be very mild and are not likely to jump to the pre-BNP-Paribas-news levels.