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Investing & Trading

Yen Carry Trade is Back, but for How Long?

“Mrs Watanabe, the market’s metaphor for Japan’s housewife yen speculators, has come back to life.” In other words, the Yen carry trade is back. Precise data remains elusive, as always, but several recent papers/articles have nonetheless succeeded in bringing some clarity to this growing, but murky, type of trading strategy. According to one source, “Monthly capital and financial account outflow rose to a nine-year high of ¥3.75 trillion in March, up from ¥1.93tn in February, according to Japan’s Ministry of Finance.

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Japanese Yen: Exports Versus Carry

Plot the Japanese Yen against almost any “major” currency over the last few months (or few weeks for that matter) and you get a pretty consistent picture. Moreover, when you graph most Yen currency pairs against the S&P 500 (I like the AUD/JPY), the correlation is uncanny! Sure enough, it was reported recently that “Japan’s currency also fell the most in a week against the euro as futures on the Standard & Poor’s 500 Index rose 0.5 percent.”

Summer Could Provide a Boost to the Dollar

There is a pattern in the following smattering of forex soundbites: “It feels like we’re already in the summer doldrums;” “[We] are moving into summer trading;” “We are in a summer period.” From three different analysts, three identical conclusions- summer has arrived.  Granted, summer officially began on June 21, but given all that’s transpired since last summer, I think we can excuse investors from delaying their summer vacations this time around by a few weeks, until the kickoff

General Uncertainity Pushes Dollar Upwards

Over the last month, the US Dollar has steadily reversed its downward fall against the Euro. While it might still be premature to pronounce an end to the amalgam of intertwined trends that sent equities, commodities, and emerging market currencies (i.e. anything risky) up and the Dollar down, it’s worth examining this possibility in greater detail.
 
My philosophy of forex has always been to focus on the medium and long-term trends. Over the last two two-three months, the medium-term narrative was one of increased risk-taking.

Currency Hedging: Is it Worthwhile?

While volatility in the financial markets has certainly declined from the record highs of October, a spike in the last week means that it is still problematic, and hence relevant. With this post, I will examine one theoretical method that has the potential both to limit volatility and to improve returns: currency hedging.

Retail FX Trading Continues to Surge

Pretty much every brochure advertising forex trading highlights the fact there is no such a thing as a bear market in forex. Stocks, bonds, and commodities can all lose value simultaneously (as happened when Lehman Brothers declared bankruptcy in October 2008) but it’s impossible for all currencies to decline simultaneously. A bear market in the Euro might be offset by a bull market in the Dollar; or Swiss Franc; or Brazilian Real. Regardless, you don’t have to search far to find currencies that are outperforming, whereas a stock picker would certainly have his work cut out for him during an economic recession.

Retail FX Trading Continues to Surge

Pretty much every brochure advertising forex trading highlights the fact there is no such a thing as a bear market in forex. Stocks, bonds, and commodities can all lose value simultaneously (as happened when Lehman Brothers declared bankruptcy in October 2008) but it’s impossible for all currencies to decline simultaneously. A bear market in the Euro might be offset by a bull market in the Dollar; or Swiss Franc; or Brazilian Real. Regardless, you don’t have to search far to find currencies that are outperforming, whereas a stock picker would certainly have his work cut out for him during an economic recession.

Currency Correlation with Stock Market Remains Intact

In my experience, currency markets (and most other securities) markets tend to be governed by trends. There are short-term trends, long-term trends, and medium-term trends. Granted, this is an oversimplification, but generally speaking, if you were to chart a given currency pair, you could characterize its fluctuations in accordance with this paradigm.

Currency Correlation with Stock Market Remains Intact

In my experience, currency markets (and most other securities) markets tend to be governed by trends. There are short-term trends, long-term trends, and medium-term trends. Granted, this is an oversimplification, but generally speaking, if you were to chart a given currency pair, you could characterize its fluctuations in accordance with this paradigm.

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