Hi ChartzardâŚ
Good threadâŚ
I could write VOLUMES on this topic⌠but that is exhausting haha
It will suffice to say that all Yen pairs fell a great deal, in parallel to
the Japanese equity index (Nikkei 225), which itself has been starting a decline that
is in parallel with other equity indices around the world - I am currently short the
British (FTSE100) and American (S&P500) ones, and I intend to hold these moves
for a long time.
Given that a falling Nikkei 225 has an inevitable bearing on the Yen pairs, and that
it is already falling from historic highs, in order to reverse its course (and that of Yen
pairs) it would have taken something extraordinary both from BoJ and from world/Asian
markets to see renewed bullish sentiment to take these assets higher once againâŚ
With the exception of the S&P500, other world indices (equities) have already started
their decline, although they have not fully engaged with a ârisk offâ mood and are reticent
to do what they did back in August 2015 - Monday 24th, the âBlack Mondayâ of the Chinese
stock market crashâŚ
This can be explained thus:
-
holding âbuy and holdâ assets at historic highs is very expensive and the yield/profit/returns are low;
-
relying on central banks for an unending and constantly expanding âeasy moneyâ (quantitative easing)
is no longer an option, with a few banks either âtaperingâ/normalising their money-printing/asset-buying
(like the Federal Reserve) or not increasing it (like the Bank of England or, recently, the Bank of Japan);
-
without a QE support, markets do not have a central-bank backing for their risk, which means that
investors on long-term positions are increasingly exposed to risk, and their clients demand a certain
performance (e.g. in the case of hedge funds), so they are unable to quite let go completely but
they are also unwilling to push more money into their position.
The combination of the above three means that either you get stagnant indices or indices that are
starting to falter and actually engaging with newly shaped down-trends from historic highsâŚ
In turn, this means that a ârisk-offâ sentiment will spread from these high-liquidity assets to
other asset classes, like currencies: with the Yen pairs all being risk-sensitive, you will see
that where more signals are coming that central banks are losing their influence to stem
the bleeding from a âflight to safetyâ (out of overexposed assets like equities and into safe
assets like USD or precious metals) there you will have no incentive for investors to want
to hold their positions, and will use catalysts like central bankersâ statements to try to
time when they should get outâŚ
Once capital starts haemorrhaging out of world equities and âcarryâ trades (like the
long-term BUY positions on Yen pairs), more assets will join in as one, moving with
a similar sentiment, responding to the same concern⌠That is when âglobal risk aversionâ
kicks in, as everyone who matters in capital markets tries to get out before it is too late,
that is, before they lose everything, as the landslide effect will gain momentum and
prices start dropping hard by hundreds or thousands of pips.
I hope this explains a little bit what is happening with the USD/JPY and the BoJâŚ