Friday, March 2, 2007

10 TRILLION YEN and Talking the Yen LOWER

That's a lot o' Yen and the amount Morgan Stanley estimates is involved in so called carry trades where traders borrow Yen at those famous near zero Japanese rates and use proceeds to invest in higher yielding markets. Again the formula is a simple one: Unwinding those trades simply means liquidity that was created is subtracted from the global market picture (read, U.S. stocks). Today the Yen has made minced meat out of the 200 day moving average.

So as the yen to short Yen to make money diminishes, other currencies have been sent sliding including our own dollar, but also the NZ dollar, the British Pound, against the Yen etc. Note, on these charts, the Yen has broken above 50 day moving average on each of them.

So that's enough exhibits to prove the point that a major shift has occurred with the Yen versus the currencies of the world. By the way, Thestreet.bomb is using a columnist to say the carry trade concerns are over blown. I won't name names, but it's the same guy who said in early February, the subprime concerns were overblown.

This leads me briefly to the dollar, where it's in the dog house again vs a basket of currencies.

The dollar index has broken again below the 50 day moving average and just couldn't push above the 200 day even though the 200 day moving average came calling on the dollar.

Yen futures at last check rose another 60 points points today and that was in spite of Mr. Yen (Sakakibara) being pulled from the woodwork to declare the Yen carry trade will be with us for some time to come. Whether Mr. Yen's prediction verifies correctly will depend on current predictions for a Japanese interest rate increase in May and whether our economic problems become severe enough for the Fed to lower rates by May or June. The 87 area on the 1st Japanese Yen chart is the level that I'm keeping a very close eye on.

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