DTT Buzz

Over the last few weeks the JPY has strengthened substantially against the USD and broke a key technical levels. After almost 20 years of finding support @ 100 and created a descending triangle reversal, the USD/JPY broke the 100 level. This break in the USD/JPY indicates the JPY will continue to strengthen versus the USD until reaches the 60 level over the coming years.

This break in the JPY indicates the Carry Trade is dead (for now). Many traders and hedge funds borrow money in Japan at a low interest rate (around 1.5%) then invest that money in countries with higher interest rates. This trade continues as long as the JPY does not strengthen; if the JPY strengthens it costs the borrower more to repay the loan in Japan. Japanese bankers understand this relationship and risk manage the accounts of the borrowers. If the borrowers accounts becoming negative the Japanese bankers liquidate them, much like a margin account when margin calls are not met.

Happy Trading

Keith Greff
Trade Analyst