StarHedgeFundTrader
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Found this interesting.
http://detachedtrader.com/
Sunday, March 19, 2006
We Remain Bullush on Yen: Looking for Carry Trade Bust Up
"YOU GO UP THE STAIRS AND DOWN THE ELEVATOR"
HSBC Analyst David Bloom on Carry Trade Carnage from players running for the exits at the same time
HSBC's David Bloom
On February 19 in Market Preview for The Week-FOMC Minutes in Focus The Detached Trader published our bullishness on Yen and a short summary of why we think traders will be rewarded handsomely trading Yen from the long side in 2006.
We wrote:
"Going into the week, I will be focusing on the Yen pairs, especially cable/yen. I see big opportunities in 2006 to trade Yen from the long side with increasing fundamentals as proven last week with relatively robust GDP growth which came in five times faster than the US with growth in consumer spending doubling in the quarter.
In addition to improving fundamentals in Japan, The Yuan is silently hitting new highs while few notice. I expect further appreciation in the Yuan to underpin Yen in 2006. If that wasn't enough to develop an appetite to trade the Yen from the long side, there is talk of the easy money policy in Japan coming to an end."
Although Yen has many positive developments going for the pair, the dynamic that we are most bullish about is a carry trade bust up. We believe this year, players soaked into the Yen carry trade will be forced to run for the exits at the same time and some serious carnage will be done in dollar/yen and the Yen crosses. On March 8th, we published our math of how we get to a sub 100 dollar/yen:
(1)End of easy money policy+ (2)higher rates+(3)yuan moves+(4)carry trade collapse=sub 100 dollar/yen.
We now add an end to the Fed tightening cycle and possible rate cuts in the US by the end of the year so the math is now:
(1)End of easy money policy+ (2)higher rates+(3)yuan moves+(4)carry trade collapse+(5) US Fed halting rate hikes and rate cut in US before end of year =sub 100 dollar/yen.
The potential explosion of the carry trade is a dynamic that few are taking seriously and this will likely lead to aggressive gains for Yen. Our appetite remains to be "picky" on our entries and trade Yen from the long side while not marrying the idea of Yen bullishness.
Good articles on Carry Trade Risk/ Warnings
http://detachedtrader.com/
Sunday, March 19, 2006
We Remain Bullush on Yen: Looking for Carry Trade Bust Up
"YOU GO UP THE STAIRS AND DOWN THE ELEVATOR"
HSBC Analyst David Bloom on Carry Trade Carnage from players running for the exits at the same time
HSBC's David Bloom
On February 19 in Market Preview for The Week-FOMC Minutes in Focus The Detached Trader published our bullishness on Yen and a short summary of why we think traders will be rewarded handsomely trading Yen from the long side in 2006.
We wrote:
"Going into the week, I will be focusing on the Yen pairs, especially cable/yen. I see big opportunities in 2006 to trade Yen from the long side with increasing fundamentals as proven last week with relatively robust GDP growth which came in five times faster than the US with growth in consumer spending doubling in the quarter.
In addition to improving fundamentals in Japan, The Yuan is silently hitting new highs while few notice. I expect further appreciation in the Yuan to underpin Yen in 2006. If that wasn't enough to develop an appetite to trade the Yen from the long side, there is talk of the easy money policy in Japan coming to an end."
Although Yen has many positive developments going for the pair, the dynamic that we are most bullish about is a carry trade bust up. We believe this year, players soaked into the Yen carry trade will be forced to run for the exits at the same time and some serious carnage will be done in dollar/yen and the Yen crosses. On March 8th, we published our math of how we get to a sub 100 dollar/yen:
(1)End of easy money policy+ (2)higher rates+(3)yuan moves+(4)carry trade collapse=sub 100 dollar/yen.
We now add an end to the Fed tightening cycle and possible rate cuts in the US by the end of the year so the math is now:
(1)End of easy money policy+ (2)higher rates+(3)yuan moves+(4)carry trade collapse+(5) US Fed halting rate hikes and rate cut in US before end of year =sub 100 dollar/yen.
The potential explosion of the carry trade is a dynamic that few are taking seriously and this will likely lead to aggressive gains for Yen. Our appetite remains to be "picky" on our entries and trade Yen from the long side while not marrying the idea of Yen bullishness.
Good articles on Carry Trade Risk/ Warnings
