Yen Carry Trade Bust up?

[jamarlin3]

http://detachedtrader.com/

We Remain Bullush on Yen: Looking for Carry Trade Bust Up

"YOU GO UP THE STS DOWN THE ELEVATOR"

HSBC Analyst David Bloom on Carry Trade Carnage 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 a short summary of why we think traders will be rewarded hsomely trading Yen the long side in 2006.

We wrote:

"Going into the week I will be focusing on the Yen ps especially cable/yen. I see big opportunities in 2006 to trade Yen 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 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 p 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 d to run for the exits at the same time some serious carnage will be done in dollar/yen 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 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 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 this will likely lead to aggressive gains for Yen. Our appetite remains to be "picky" on our entries trade Yen the long side while not marrying the idea of Yen bullishness.

Good articles on Carry Trade Risk/ Warnings

[birdjaguar]

You have a very good case here; however after the carnage people will still look to take advantage of the interest rate differential while going up the sts. As long as stops are in place to keep one going down the elevator it should not be a killer. For those positions traders who don't use stops trouble may be brewing.

It is difficult to trade JPY the long side because the daily interest cost takes so much of your profit. If you can catch the best trades just before the elevator drops then much of the interest expense can be avoided. I am not that good. I trade it both sides. Thanks for the heads up anyway. No one knows where the market will go but you are likely correct in your analysis of Yen strength. It is certainly something to be very careful with this year. Happy trading!