Carry Trade

Discussion in 'Economics' started by c.chugani, Dec 15, 2007.

  1. Its been a while now that the price of Yen and the US Markets have been inversely correlated.

    However, yesterday we experienced both a spike in the dollar and a sell-off in the US indices.

    Your thoughts / explanations on this divergence? I was expecting the Yen to get stronger, as investors would flee out of equities which are starting to look unnattractive - in order to cover their short Yen positions.

    Are we looking at a turning point in the current USD downtrend? Future fed cuts less likely?
    Thanx for your input.

  2. Yes, USD downtrend is over. The record number of Europeans are flocking into US for Christmas shopping. This is straw in the wind that strengthening of the dollar is around the corner.
  3. how long are you looking to trade/hold this? long term needs to push 117.5~...

    USDX 2 year downtrend major resistence at 80
  4. So you guys reckon we will now enter a period where both the yen loses its current value against the dollar AND the US indices experience a downtrend?

    Because for some time now, a weak yen had always led to equity bubbles in the US markets.
  5. ^well, the interest rate differential is closing. Second, Japan is finally easing out of deflation. Third, exports are a smaller % of Japan's GDP than before (right now at 15%).

    I would no longer extrapolate relationships from the past 20 years into the future. In fact, I personally believe (and it's not a particularly unique viewpoint) that Japan is the new safe haven. As consumer confidence increases, I believe there will be a lot of growth potential in Japanese small to mid cap companies relying on domestic, organic growth. Also, they have little correlation to the S&P (Japanese small caps have an r^2 of ~.27), making them an excellent way to increase return while reducing risk in a diversified, long term portfolio.
  6. BJL