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Currency Markets Meltdown


yellerkat
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It's a Yen meltup, the greenback is little changed versus the other majors (with the exception of CHF). And the BOJ is nowhere to be seen...

Bloomberg's explanation:

Japanese insurers buying the Yen to pay out claims.

To me that sounds like complete fluff. Any bright minds with a better explanation for the crazy Yen buying going on?

EDIT: Stops being hit? Algos?

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Once the 1995 yen/dollar low was taken out, this kind of action wasn't too surprising. Lots of technical reasons, but I think loads of derivative positions must have been triggered.

Back to 79.2 now, so all the hallmarks of emotion and machine led buying for a few hours. The Nikkei made a nice recovery throughout the day as well.

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Once the 1995 yen/dollar low was taken out, this kind of action wasn't too surprising. Lots of technical reasons, but I think loads of derivative positions must have been triggered.

Back to 79.2 now, so all the hallmarks of emotion and machine led buying for a few hours. The Nikkei made a nice recovery throughout the day as well.

Nikkei futures were 1000 points down before open. PPT in action.

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Just thinking aloud here. Could that have been the BoJ acting last night? The common assumption is that the BoJ is trying to weaken the yen to make their exporters more competitive but if the thinking is now that they will need to import massive amounts of raw materials then a strong yen would obviously be advantageous. If the BoJ really wanted a weaker yen then they could have easily caused the yen to break northwards from the USDJPY triangle that has been forming since November last year.

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I'm sure if people are patient enough to sit and wait long enough you could make a fortune in these currency plunges from supportA to a target pointB. All it takes is one global disaster/black swan event which occur once every 1-2 years.

Edited by Money Spinner
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To me that sounds like complete fluff. Any bright minds with a better explanation for the crazy Yen buying going on?

My thoughts are:

* Disaster has destroyed the value of substantial Japanese assets.

* Those assets were likely collateral for loans speculatively invested overseas.

* Anticipating future funding difficulties, foreign assets are sold to pay down debts.

This, to me, seems to be the prelude to bankruptcies for remaining leveraged 'investors' based in Japan.

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Just thinking aloud here. Could that have been the BoJ acting last night? The common assumption is that the BoJ is trying to weaken the yen to make their exporters more competitive but if the thinking is now that they will need to import massive amounts of raw materials then a strong yen would obviously be advantageous.

If the market was pricing in a strong importof raw materials from Japan why would the AUD drop 3 cents in the past 4 days.

The market is pricing in the possibility of a Chernobyl type event where 200km around the facility is uninhabitable.

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Hmm, worst economic news for Japan since WW2 and the Yen hits multi-decade highs verses $, £ etc. UK unemployment rises again and OECD downgrade growth prospects and the £ rises vs. $ and Euro.

Disconnect here. Must be the hedge funds and derivatives betting billions so that good news is read as a sell and bad news a buy.

If the nuclear plants blow up and 1/3rd of Japan is uninhabitable is that buy signal for anything Japanese?

Or will the market revert to norms and see currency appreciation on this scale as bad for exports and losing one third of your territory to radiation as no reason for financial euphoria?

Even more odd is gold which was once the haven when the world was in turmoil--ME not getting any better either. So where is the flight to safety when there is no safety?

Edited by Realistbear
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See my blog post from a couple of days ago...

http://britishnationalist.blogspot.com/2011/03/japanese-want-their-yen-back.html

...it's mama-san wanting her savings back so she can redecorate and buy some groceries while papa-san's factory isn't working.

The effect on us is actually quite difficult to compute. Certainly money will be harder to borrow; loans declined etc; effective interest rates going up as competition for what money is available gets fierce.

But is it inflationary or deflationary? On the inflation side we have sterling being sold to buy yen hence sterling falling value and making commodities more expensive, and on the deflation side tight money means cash buys more. Which force is stronger? Who can say?

And another treat to look forward to is any big banks with short yen positions which might be embarassed by sudden unexpected currency movements. May be time for the taxpayer to dig deep again! ;)

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The International Monetary Fund (IMF) has said that the most important policy priority for Japan now was to restore economic growth as quickly as possible, reports Reuters.

Especially for the people whose houses and families got washed away ...

Presumably reconstruction now will indeed be a big economic stimulus - biggest since post-1945. Government/central-bank may be bust and doing a headless-chicken act, but the people and the corporations aren't short of a bob or two.

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Typical size/price inversion fat finger error in a fairly thin market.

What was the saying again?

"If you've been playing poker for half an hour and you still don't know who the patsy is..."

(the only thing mildly more amusing than the wingnut theories people have been assigning to Fx events over the past week is the very understandably human, if not also wildly hilarious need to assign any kind of explanation to "things that just happened")

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Bloomberg say short orders vs. Sterling are increasing following the Natiowide consumer sentiment report and continuing job loss trend. However, this did not stop Fitch renewing its "there is no Elephant" rating which send sterling soaring vs. the $ but slighty down vs. the Euro which is equally contrarian given their debt situation and an imminent Portugal bail out. The Yen has, as we all now, been benefiting from the triple disasters in Japan , the $400bn emergency QE, and the possibility of a Chernobyl situation occuring.

What is apprent is that the traditional flight to safety to the US dollar has switched to a flight to risk in Yen as niether the Euro nor the $ have been benefiting.

How long will sterling last at current levels and receiving the highest ratings from the credit ratings agencies? IMO its all about house prices and the perception that the miscroscopic drops are reality.

So what is driving sterling?

1. Deteriorating job situation

2. £5.1TR debt

3. Record low confidence

4. Inflation--most likely cause?

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