JLS: Carry Traders Entry Rates, the Impact & Operating Modul
Carry traders are similar to traditional traders and the only different with carry traders is they utilized a borrowed funds for carry trading activity by pledging their assets to their custodian and lending bankers. Therefore, the source of their funds is limitless by the legal lending limits of the global prime banks.
The CHF and JPY carry traders are entering the market if and when the USDCHF and the USDJPY at their lower bands/ceilings and the NZDUSD, CADUSD, AUDUSD, GBPUSD and EURUSD at their lower bands/ceilings. Therefore, when the CHF and JPY carry traders collectively to enter the market then the USDCHF, NZDCHF, CADCHF, AUDCHF, GBPCHF and EURCHF collectively to move from their lower bands/ceilings to their upper bands/ceilings and similarly the USDJPY, NZDJPY, CADJPY, AUDJPY, GBPJPY, EURJPY collectively to move to upward to their upper bands/ceilings. The entry rates and the timing of carry traders to enter the market is the timing for central banks to undertake market sterilization and due to the carry trading activity will strengthen the USD, NZD, CAD, AUD, GBP and EUR and then the global central banks unnecessary to undertake market sterilization (called honeymoon affect by Krugman).
The borrowed CHF and JPY funds are continuously exchanged to USD, NZD, CAD, AUD, GBP and EUR to weaker the JPY and to strengthen the USD, NZD, CAD, AUD, GBP and EUR (supply of CHF and JPY). And the proceeds of the USD, NZD, CAD, AUD, GBP and EUR to be utilized to invest into USD-, NZD-, CAD-, AUD-, GBP- and EUR-denominated debt securties. At this time, the CHF and JPY to be weaker and the USD, NZD, CAD, AUD, GBP and EUR to be stronger by the exchanges. Thus, USDCHF, NZDCHF, CADCHF, AUDCHF, GBPCHF and EURCHF to upward, USDJPY, NZDJPY, CADJPY, AUDJPY, GBPJPY, EURJPY to upward and the NZDUSD, CADUSD, AUDUSD, GBPUSD and EURUSD to upward.
During the liquidation (unwinding), the USD, NZD, CAD, AUD, GBP and EUR-denominated debt securities to be disposed and the USD, NZD, CAD, AUD, GBP and EUR re-exchanged back to JPY and result the weakening of the USD, NZD, CAD, AUD, GBP, EUR and the strengthening of the JPY (demand on JPY and CHF). Thus, USDCHF, NZDCHF, CADCHF, AUDCHF, GBPCHF and EURCHF to downward, USDJPY, NZDJPY, CADJPY, AUDJPY, GBPJPY and EURJPY to downward and the NZDUSD, CADUSD, AUDUSD, GBPUSD and EURUSD to downward.
If and when the JPY on carry trading activity and at the same time the CHF on unwinding trading and/or the CHF on carry trading activity and the JPY on unwinding trading then ALL PRICES tend to be flat/sideways/no direction. Therefore, BoJ and SNB also called "monetary banks" at their head-quarters buildings.
In conclusion, the operating modul of carry trading and unwinding trading is interior the target zones of the currency bands.
The CHF and JPY carry traders are entering the market if and when the USDCHF and the USDJPY at their lower bands/ceilings and the NZDUSD, CADUSD, AUDUSD, GBPUSD and EURUSD at their lower bands/ceilings. Therefore, when the CHF and JPY carry traders collectively to enter the market then the USDCHF, NZDCHF, CADCHF, AUDCHF, GBPCHF and EURCHF collectively to move from their lower bands/ceilings to their upper bands/ceilings and similarly the USDJPY, NZDJPY, CADJPY, AUDJPY, GBPJPY, EURJPY collectively to move to upward to their upper bands/ceilings. The entry rates and the timing of carry traders to enter the market is the timing for central banks to undertake market sterilization and due to the carry trading activity will strengthen the USD, NZD, CAD, AUD, GBP and EUR and then the global central banks unnecessary to undertake market sterilization (called honeymoon affect by Krugman).
The borrowed CHF and JPY funds are continuously exchanged to USD, NZD, CAD, AUD, GBP and EUR to weaker the JPY and to strengthen the USD, NZD, CAD, AUD, GBP and EUR (supply of CHF and JPY). And the proceeds of the USD, NZD, CAD, AUD, GBP and EUR to be utilized to invest into USD-, NZD-, CAD-, AUD-, GBP- and EUR-denominated debt securties. At this time, the CHF and JPY to be weaker and the USD, NZD, CAD, AUD, GBP and EUR to be stronger by the exchanges. Thus, USDCHF, NZDCHF, CADCHF, AUDCHF, GBPCHF and EURCHF to upward, USDJPY, NZDJPY, CADJPY, AUDJPY, GBPJPY, EURJPY to upward and the NZDUSD, CADUSD, AUDUSD, GBPUSD and EURUSD to upward.
During the liquidation (unwinding), the USD, NZD, CAD, AUD, GBP and EUR-denominated debt securities to be disposed and the USD, NZD, CAD, AUD, GBP and EUR re-exchanged back to JPY and result the weakening of the USD, NZD, CAD, AUD, GBP, EUR and the strengthening of the JPY (demand on JPY and CHF). Thus, USDCHF, NZDCHF, CADCHF, AUDCHF, GBPCHF and EURCHF to downward, USDJPY, NZDJPY, CADJPY, AUDJPY, GBPJPY and EURJPY to downward and the NZDUSD, CADUSD, AUDUSD, GBPUSD and EURUSD to downward.
If and when the JPY on carry trading activity and at the same time the CHF on unwinding trading and/or the CHF on carry trading activity and the JPY on unwinding trading then ALL PRICES tend to be flat/sideways/no direction. Therefore, BoJ and SNB also called "monetary banks" at their head-quarters buildings.
In conclusion, the operating modul of carry trading and unwinding trading is interior the target zones of the currency bands.