Johanes
Long

JLS: CHF, JPY & EUR Carry Traders Too Confidence on Market

FX:USDCHF   U.S. Dollar / Swiss Franc
The wold's most capitalized carry traders (CHF, JPY and EUR) too confidence on the market and more confidence than IMF/BIS and the central banks by flowing their capital to stimulate the global economy at current IMF's projected global economic slowdown. By flowing their capital into the global currencies and securities will stimulate the global economy and at least to defend the global economic slowdown. Investing their limitless capital into the low risk of developed and developing nations' currencies and debt securities as well as for selected emerging markets' currencies and debt securities may defend the global economic slowdown and re-accelerating the economic growth. Freezing the capital domestically faces inflation attack and exporting the capital to invest into global currencies and debt securities will generate inflation risk-adjusted financial returns.

The CHF carry traders will continue to carry the USD and USD-denominated debt securities up to 1.0700 interior the USDCHF estimated target zone 0.9700-1.0200-1.0700. Accordingly, the CHF will carry the NZD, CAD, AUD and GBP to their upper bands/ceilings of equivalent rate to USDCHF 1.0700 or to drive the NZDCHF , CADCHF , AUDCHF and GBPCHF prices to upward up to equivalent rate to USDCHF at 1.0700. Their price movements to upward is in compliance to equlibrium exchange rate of their interest rate differentials.

Similarly, the JPY carry traders will continue to carry the USD and USD-denominated debt securities up to 117.00 interior the USDJPY estimated target zone 107.00-112.00-117.00. Accordingly, the JPY will carry the NZD, CAD, AUD and GBP to their upper bands/ceilings of equivalent rate to USDJPY 117.00 or to drive the NZDJPY , CADJPY , AUDJPY and GBPJPY prices to upward up to equivalent rate to USDJPY 117.00. Their prices movements to upward is in compliance to equilibrium exchange rate of their interest rate differentials.

And, the EUR carry traders will continue to carry the USD and USD-denominated debt securities up to 0.9200 interior the EURUSD estimated target zone 1.1800-1.0800-0.9200. Accordingly, the EUR will carry the NZD, CAD, AUD and GBP to their lower bands/ceilings of equivalent rate to EURUSD 0.9200 or to drive the EURNZZD, EURCAD , EURAUD and EURGBP prices to downward up to equivalent rate to EURUSD 0.9200. Their prices movements to downward is in compliance to equilibrium exchange rate of their interest rate differentials.

At current interest rate differential structures, the USD is stronger than CHF, JPY and EUR by driving the USDCHF and USDJPY to upward in parallel to the CHF and JPY carry trading activity and the USD is stronger than EUR by driving the EURUSD price to downward in parallel to the EUR carry trading activity. Similarly, by interest rate differentials, the USD is stronger than NZD, CAD, AUD and GBP by driving their prices to downward of the current target zones. However, the carrying and re-carrying made by the CHF, JPY and EUR on the NZD, CAD, AUD and GBP supportive to slower the weakening of NZD, CAD, AUD and GBP by the USD and result the NZDUSD , USDCAD , AUDUSD and GBPUSD to be stable at their "disequilibrium states" of their current target zones (irregular sideways). The re-carrying made by the CHF, JPY and EUR may supportive to drive the NZDUSD , AUDUSD , CADUSD (not USDCAD ) and GBPUSD to re-visit their upper bands/ceilings, and their upper bands/ceilings will be defended by the Fed to maintain their price stability.

The unwinding trading made by the CHF, JPY, EUR in the future may result prices crashes (CEPR; Carry Trading & Currency Crashes) whereby the NZDUSD , AUDUSD , CADUSD and GBPUSD will be at deep crashes but actually interior their target zones as well as JPY and CHF-pegged pairs at deep crashes and the EUR-pegged pairs ( EURNZD , EURAUD , EURCAD and EURGBP ) to skyrocket but inteior their target zones. The prices crashes not always anticipated and market panic, however the crashes are interior their target zones and harmless to the price stability management.

The current re-carry trading activity will drive the New Zealand, Australian, Canadian and the UK market to rally but will experience deep drop during the unwinding. This deep drop also may result market panic but this is only large market correction by the large liquidation made by the carry trades from the debt securities (bonds/notes, stocks, indices, ETF , etc) for profit booking. The deep drop will resume to rally by the future carry trading activity, thus it is a "market cycles".
your analysis on usdjpy changes often, recently you were more inclined to announce that carry traders were discarded and therefore it will push usdjpy downward from 112 to 107 and even below, and here finally you are more inclined for a usdjpy pushing to 117
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Johanes lapin_eliott
@lapin_eliott, usdjpy currency band too volatile on her U-shape and S-curve and always mixed, therefore I decided to stay with target zone analysis as per Fed's guidelines
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