Originally Posted by
;
this is what Vegas needed to mention in one of his websites about carry trading. The day it unwinds, it is going to be hell for some and lots of cash for others.
Vegas:
EUR/JPY
This pair was in buy mode since May 17th, and there's been no thrust at or outside the first fib
extreme.
We traded after on the fall into the first fib, almost got stopped out, and then sold on the rally back for a
very small loss.
However, storm warnings are brewing in this pair which makes it incredibly hazardous to be long on breaks.
I told you before, major news trumps all technicals, and on this subject we definitely have some major
news. For the first time I can recall in a cross, politicians are getting in to act. This past week, all hell
broke loose if some Finance minister in Europe talked about the EUR/JPY along with also the demand for this particular
cross to quit appreciating because it was damaging European exports. He hinted that it will be a subject for
discussion at the forthcoming G-7 summit in Singapore on September 15 -- 20th.
Nowthe issue here is the fact the entire world is long EUR/JPY, and for that matter brief the
Yen in all the crosses. Yen was theâ€funding vehicle†for all the carry trades throughout the previous few
years. Past history suggests when this carry trade falls out of favor with the hedge fund community it
is going to be NASTY. I mean REAL NASTY. Account end horrible. Moves that make you believe that your
system is broken and can't possibly be appropriate. I am speaking of anywhere from 500 to 2,000 pips in a
few days. Moves that kill speculators and make each politician happy at the idea. The last
suggests this is going to be the outcome.
You will find TRILLIONS of dollars worth of those trades on, and when this political talk that began last
week starts to gain traction with other politico's in Japan and elsewhere, seem out below. I can
assure you, right now, there are lots of hedge fund managers who are very nervous about this pair
and their long positions. When [ not if ] these men hit the exit at precisely the same time it can get REAL
interesting. Your market stop, in a situation like this, is moot. With a long position, you could very
readily get stuffed 700 pips from your stop [ or worse ].
Let's be clear.
I don't know when it'll happen -- I just know it will happen. All the dominoes are being put up. The
politico's are starting to ship theâ€between the lines†message into the investment community. Right now,
everybody would like to play nice. But, the cannonball wasâ€shot across the bowâ€. It is just an issue of
time.
So, though we don't have a reversal top above the fib extreme, I am shifting to market mode within this
pair.
Everybody understands it is going to happen; I noticed soros speak of it not long ago. This is going to be a memorable story that is likely to be researched in universities accross the world for quite a while after conveys unwind.