Posted on 11/12/2007 7:58:43 PM PST by TigerLikesRooster
Daily FX
Carry Trade Falls Sharply on Risk Aversion
Monday November 12, 10:23 am ET
By Antonio Sousa, Quantitative Strategies Analyst
strategist@dailyfx.com
Investors are becoming more risk averse on speculation major banks could announce more write downs tied to subprime home loans, a situation that has been benefiting the Japanese yen and triggering a major sell-off on carry trades. Not surprisingly, during last week, the DailyFX Dynamic Carry Trade Portfolio was down by 540 pips. The biggest loss was taken in the short position we held in the Japanese yen with 415 pips loss. Moreover, since stop losses are activated when we have a weekly close below the specified stop level, we are out of the USDJPY position. Looking ahead, we believe the sharp drop in the Australian dollar, opened a window of opportunity to get long AUD/USD at current levels. In fact, we believe higher commodity prices (Gold is above $800) driven by the demand by China (growing at more than 10 percent per year) should continue to support the Aussie and other commodity currencies.
Ping!
Unless, of course, the Chinese bubble pops... Then things get really interesting.
A few more panicked, pointless rate cuts and the “carry trade” will switch from yen to benjamins.
They’ll probably hang on until the Olympics are over.
... In which case the world will be selling dollars and buying high-yielding currencies with the proceeds. Bye-bye dollar!
Our bubble is popping not the Chinese's one. If they even have one
Antonio Sousa, Quant Jock
Economy/Credit/Housing Issues Ping List
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A few more panicked, pointless rate cuts and the “carry trade” will switch from yen to benjamins.
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A few more panicked, pointless rate cuts and oil will be at $150...
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