the future and the carry currency

[petersmitty]

As we run up to the FOMC news on Wednesday (23rd Sept 2009), the foreign exchange markets are subdued, or at least, some are.

With the new government in Japan and some radical changes explored and talk of USD$ and GBP£ becoming the new currencies for the carry trade, some major upheaval seems imminent in the volumes for the FX markets.

As a primarily Yen trader, it is painfully obvious that the banks and funds are concentrating on the USD$ of late and will do so over the week but as the changes in the markets occur.

Where does everyone see the future of market action in FX and what will become the new carry trade?

The Yens certainly aren't the leader in volatility and intraday movement and range any more...

Forex Volatility - Mataf.net

 

[GammaJammer]

Maybe I'm reading that little calculator thing wrong mate - looked to me like usdjpy and JPYx were all at / near the top of the pile vol wise, at least according to how that particular site calculates it.

Where am I going wrong? I admit I have been pretty buried today so did only give it a couple of seconds look.


GJ

 

[petersmitty]

Okay, so that link probably wasn't the best choice for my point but anyone with a selection of charts in front of them can see that the Yen pairs are not the volatile choice they once were.

With the legs pulling markets like EUR/JPYand GBP/JPY apart as they are, the Yens in particular, but most non USD$ pairs are becoming very tightly bound which is due to all the action in the USD$ crosses instead.

The point being, that the action being prominent in the USD$ crosses now, is this the future with the Japanese changes in government and the possibilities of a new choice for carry trades? Libor states it should still not be the case as yet but the charts don't lie.....

Browse LIBOR data

 

[GammaJammer]

It's just what's happening now. Doesn't necessarily mean a paradigm shift has taken place. Just a few different planets lining up.

But it's tough to keep on top of exactly what IS driving markets every day, even if you have all the tools and info at your disposal.

 

[petersmitty]

I personally think it is much more monumental than that, and there could be a lot more important change afoot but, I will leave my views out for the moment just in case there are any others here who think more in depth about the workings of the FX markets than just the crossing of 2 MA's

 

[TheBramble]

It’s pretty much odds on that the new government in Japan is going to require more funding than less. This would be true of ANY government regardless of political flavour or specific nation at the current time.

To attract funding they need to offer inducements in the way of high(er) interest yields. The downside of higher rates is generally a reduction in export demand (as their products become more expensive to foreign buyers) and therefore, reduction in demand for Yen in order to buy Japanese products. Given the new Democratic Party has stated its primary objective is to grow the domestic economy, there could well be a bias toward domestic market stimulus at the expense of reduced exports. This is less of a big deal in the current global downturn as there is already less demand for exports and the hit they would d take will be less than at any time in the last 10 years.

I can see a potential increase in rates in Japan and foreign funds attracted to that like a magnet. The increase in attractiveness of Yen denominated financial products will lead to greater foreign demand for those financial products and therefore for the Yen itself. If you can’t sell product to a depressed global economy, you can always sell high yield regardless of its sustainability or long-term negative consequence on the home economy. Something the US and the UK will have to vie for somewhat competitively themselves over the next few years albeit with something of a sub-prime loading for their past sins.

The Yen as the low-yield part of the quintessential carry trade over the last decade giving ground to, what? CAD and CHF look likely candidates and possibly (?) present a longer-term likelihood of gravitating around their current levels than do the more recent additions to the low-yield club of the GBP and USD which, as I suggest above, will have to pull an interest rabbit (or two) out of the hat sooner, rather than later.

 

[petersmitty]

But it's tough to keep on top of exactly what IS driving markets every day, even if you have all the tools and info at your disposal.

I would have thought that, at least, was obvious...

 

[counter_violent]

Possibly Aud ....domestically reasonably unaffected by world events. (rate rises first in line if everything picks up)
They have Gold interests (inflation threat) Mining (if the worlds economies pick up anytime soon)
Good chance rates will rise there before anywhere else.
Just a thought.

 

[Jason Rogers]

Possibly Aud ....domestically reasonably unaffected by world events. (rate rises first in line if everything picks up)
They have Gold interests (inflation threat) Mining (if the worlds economies pick up anytime soon)
Good chance rates will rise there before anywhere else.
Just a thought.

And the NZD, my second favorite behind the AUD

 

[The Baptist]

As we run up to the FOMC news on Wednesday (23rd Sept 2009), the foreign exchange markets are subdued, or at least, some are.

With the new government in Japan and some radical changes explored and talk of USD$ and GBP£ becoming the new currencies for the carry trade, some major upheaval seems imminent in the volumes for the FX markets.

As a primarily Yen trader, it is painfully obvious that the banks and funds are concentrating on the USD$ of late and will do so over the week but as the changes in the markets occur.

Where does everyone see the future of market action in FX and what will become the new carry trade?

The Yens certainly aren't the leader in volatility and intraday movement and range any more...

Forex Volatility - Mataf.net

The current Carry Trade of favour at present is USD to ZAR/the Brazillion Real.

Both approach almost double digits interest and have appreciated too vs Dollar (and GBP) of late.

Commodity currencies with med - high risk.