[stucros]

So ‘smart money’ is that the sort of money that is beta than the rest of us???? Excuse the pun!!!!

OK so you’re saying it has nothing to do with volume and it is merely an observation of what this ‘smart money’ is doing? First I don’t really like the term ‘smart money’ - I can hope we can agree that a hedge fund or a prop desk in a bank could be described as ‘smart money’? These guys being smart with their money don’t tend to tell anyone what they are doing and some positively hide what they are doing!!!!

So a sales/trader is working the London session and during his day he see some big size trades come through from my hedge fund clients buying eurjpy but bizarrely nothing in usdjpy and eurusd. At the end of the day he sees that eurusd, usdjpy and eurjpy are all up and attributes these moves to buying of eurjpy rather than anything in the majors.

Here are a couple of examples out of millions of possible why he would be wrong to be so confident:

A simple one: A large eurjpy buy order comes in to bank X from hedge fund Y. This is actually the HF closing out a position which he took on earlier in the day with another bank and for one reason or another has decided to get out of .Both banks have hedged/worked the order in the interbank market so simply across the day neither of these orders could have arguably had any impact of eurjpy.

A more complex one: Another big order comes into bank X from hedge fund ABC. Here the HF had a large exotic option in eurjpy but our man doesn't know this!!! – I think it’s best for the example that we say something like and RKO as it’s simple but the delta can still switch violently. The HF has been hedging this option when it knocks out it has therefore become a big buyer of eurjpy. At the same time to this Bank Z which is on the other side of the option has also been hedging and is now a big seller of eurjpy. Bank Z hedges in the interbank as bank X is laying off the trade in the interbank. Both being equal and opposite that HF order won’t have effected eurjpy!

Both these orders would have created nothing more than noise for eurjpy and would have not have had any effect on eurjpy daily performance!!!!

If you were around during the 90’s do you remember Andrew Kriegers position in the kiwi? I can’t remember the ins and outs but everyone saw his flow in the spot market and thought he was one way but it turned out he also had a large option position. They tried to trade against him and it all ended in tears!!!!

Anyway back the original point eurjpy moves up. You can say that there have been more buyers of eur than there have been jpy. To say that these buyers of eur have been selling jpy and it is this which has moved eurusd and usdjpy is a step too far, in my opinion.

One exception I would add about my ideas would be the central banks as their flow is large and one way but it is certainly not ‘smart money’ and also certainly not what Kathy is referring too!!!!!!