Saturday, November 18, 2006

Forex News: Yen Rises on Fear of Carry Trade Liquidation

Forex News

Talk of carry trade liquidation is helping to send the Japanese Yen higher today. This is something that everyone needs to start getting use to as carry trades face greater risks. Today’s move was sparked by rumors that a large hedge fund needed to bail out of their carry trades to fund bad energy bets. That was later denied by the hedge fund in question, but nonetheless reinforces a worry in the FX market. The G-20 meeting is being held in Melbourne Australia this weekend along with the BIS meeting. The last time we heard from central bankers at one of these meetings, their comments were mostly targeted at the Japanese Yen. We would not be surprised to hear the same this time around. With EUR/JPY above 150 and USD/JPY not far from its recent highs, we expect government officials to continue to be critical of the weakness of the yen, which would be positive for the currency and exacerbate its strength. Futures traders have already begun to pile out of their short yen positions as indicated by the latest IMM report. The Icelandic Krona, which is another popular carry currency, is already beginning to see an unwinding, which may be a sign of what may be to come for the Yen.


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