Wednesday, April 16, 2014

Yen Carry Trade Moving Away From The Danger Zone

Yen Carry Trade Moving Away From The Danger Zone


A Step Back
Markets are all about managing expectations. Yesterday, we talked about the fear of a weak GDP in China. Expectations were pegged at 7.3% but I bet inside the traders mind they were ready for worse than that. It came out at 7.4% (prior month was 7.7%). Ouf… The Nikkei was the biggest benefactor with a massive 3% rally. Comments regarding rebalancing in the gigantic government pension fund also helped push stocks and the Yen carry trade higher in Asia. Surprisingly, precious metals, which started their drop on bad Chinese data yesterday, did not get any boost.
The biggest mover overnight was the GBP, outperforming its peers after the lowest unemployment reading in the last five years. Also note it is the first time it goes below the 7% original interest rate guidance. They changed the guidance a few months ago but this was supposed to be the first stepping stone to an increase in rates. I am sure Carney is glad he changed that. The Euro-zone’s CPI also came out this morning in line with expectations at 0.5%. In the meantime in Ukraine they are still playing cat and mouse.
In Store for Today
Two main events, two countries. U.S. Beige Book this afternoon and BoC Rate Decision in Canada. No change at 1% is the expectation but watch out for the speech, since the last time Poloz spoke he talked down the Loonie. The U.S. also gets second and third tier data: MBA Mortgage applications, Building Permits, Housing Starts, Industrial/Manufacturing Production and Capacity Utilization.
FX Market Calls
·         The long Aussie idea of reaching 0.9750 will be valid as long as 0.9130 remains support. I have moved the StopLoss higher to protect gains and I will use the trend line as my indicator to get out.
·         The VIX trade remains a buy above 11.40 with a minimum target of 21.70. Trade initiated April 3rd (13.25).
·         Monitor the 101.05 $JPY support for the Yen Carry Trade, especially if the Market continues to unwind itself. I will be selling the break of it. I also found an interest on the EURJPY and I figure the equivalent of 101.05 $JPY is 140 on the EURJPY. The market is currently moving away from those key levels.




By Hugo Murphy
Trader
Kitco Metals Inc.
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