Long CHF and JPY-Pegged Pairs, Carry Trading Following Trading
Both JPY and CHF carry traders likely already re-entered the market by re-carrying the major currencies.
The JPY carry traders are carrying the USD, CAD, NZD, AUD, GBP and EUR currencies and their denominated debt securities and result the USDJPY, CADJPY, NZDJPY, AUDJPY, GBPJPY and the EURJPY to bullish and will continue to bullish to their upper short term ceilings/bands. The carry trading activity supportive to slower the weakening of those currencies to USD by lifting the prices of CADUSD, NZDUSD, AUDUSD, GBPUSD and EURUSD to their upper short term ceilings/bands but will not be permitted to break the upper ceilings.
Similar to JPY, the CHF carry traders are carrying the USD, CAD, NZD, AUD, GBP and EUR currencies and their denominated debt securities and result the USDCHF, CADCHF, NZDCHF, AUDCHF, GBPCHF and EURCHF to bullish and will continue to bullish to their upper short term ceilings/bands. The carry trading activity also supportive to slower the weakening of those currencies to USD by lifting the prices of CADUSD, NZDUSD, AUDUSD, GBPUSD and EURUSD to their upper short term ceilings/bands but will not be permitted to break the upper ceilings.
The current carry trading activity replace the needs of central banks for market sterilization to slower the weakening of major currencies by the USD, except the JPY and CHF to be weakened by the carry trading activity but in compliance to their equilibrium exchange rate prices. Further, the carry trading activity also meeting the policy.
The USDJPY is estimated to revisit the 112.00 and the USDCHF to revisit the 1.0200 in short term. Not anticipated for those level to be broken except the Fed may change the interest rate policy or the US inflation to upside risk in medium term (current downside risk). Thus, the 112.00 and 1.0200 estimated to be the basis for price turning measurement. And, the current bullish turning prices were 106.80 and 0.9690, slightly lower than the previous 107.00/0.9700.
The estimated upper ceiling for EURJPY is 126.50/127.50, for GBPJPY 146.00/148.00, for AUDJPY 79.50/80.50, for NZDJPY 75.00/76.00 and for CADJPY 84.50/85.50, these estimations however is subject to actual average traded weighted rates by their major pairs. The estimated upper ceiling for CHF-pegged pairs will be posted.
At such, during the next 1-2 months, long trades of those pairs by carry trading following trading could be interesting. During this period, the major pairs will be "bullish by interdays but bearish by daily high to low" until the carry trading activity to be completed. Carry trading currency pairs tend to be "consistent bullish" and sudden bearish tends to be "temporary". Single tranche or multiple tranches of long trades during the bullish time are both recommendable.
The JPY carry traders are carrying the USD, CAD, NZD, AUD, GBP and EUR currencies and their denominated debt securities and result the USDJPY, CADJPY, NZDJPY, AUDJPY, GBPJPY and the EURJPY to bullish and will continue to bullish to their upper short term ceilings/bands. The carry trading activity supportive to slower the weakening of those currencies to USD by lifting the prices of CADUSD, NZDUSD, AUDUSD, GBPUSD and EURUSD to their upper short term ceilings/bands but will not be permitted to break the upper ceilings.
Similar to JPY, the CHF carry traders are carrying the USD, CAD, NZD, AUD, GBP and EUR currencies and their denominated debt securities and result the USDCHF, CADCHF, NZDCHF, AUDCHF, GBPCHF and EURCHF to bullish and will continue to bullish to their upper short term ceilings/bands. The carry trading activity also supportive to slower the weakening of those currencies to USD by lifting the prices of CADUSD, NZDUSD, AUDUSD, GBPUSD and EURUSD to their upper short term ceilings/bands but will not be permitted to break the upper ceilings.
The current carry trading activity replace the needs of central banks for market sterilization to slower the weakening of major currencies by the USD, except the JPY and CHF to be weakened by the carry trading activity but in compliance to their equilibrium exchange rate prices. Further, the carry trading activity also meeting the policy.
The USDJPY is estimated to revisit the 112.00 and the USDCHF to revisit the 1.0200 in short term. Not anticipated for those level to be broken except the Fed may change the interest rate policy or the US inflation to upside risk in medium term (current downside risk). Thus, the 112.00 and 1.0200 estimated to be the basis for price turning measurement. And, the current bullish turning prices were 106.80 and 0.9690, slightly lower than the previous 107.00/0.9700.
The estimated upper ceiling for EURJPY is 126.50/127.50, for GBPJPY 146.00/148.00, for AUDJPY 79.50/80.50, for NZDJPY 75.00/76.00 and for CADJPY 84.50/85.50, these estimations however is subject to actual average traded weighted rates by their major pairs. The estimated upper ceiling for CHF-pegged pairs will be posted.
At such, during the next 1-2 months, long trades of those pairs by carry trading following trading could be interesting. During this period, the major pairs will be "bullish by interdays but bearish by daily high to low" until the carry trading activity to be completed. Carry trading currency pairs tend to be "consistent bullish" and sudden bearish tends to be "temporary". Single tranche or multiple tranches of long trades during the bullish time are both recommendable.
Comment:
Comment:
Carry trading activity drives the prices to bullish from disequilibrium state to equilibrium state by the interest rate differentials in accordance to the equilibrium exchange rate theory. The theory agreed for exchange rate prices tend to move from "equilibrium exchange rate price at economic fundamental" or disequilibrium to "equilibrium exchange rate price at interest rate differential" or equilibrium. Thus, the carry trading activity is in compliance to the theory and policy.
At equilibrium state ceiled by the agreed policy, the carry traders liquidate their holding positions (unwinding) for profit booking, and at such time the exchange rate prices tend to move from "equilibrium state" to "disequilibrium state" in compliance to the equilibrium exchange rate theory and target zone theory and policy. Thus, unwinding trading is in compliance to the theory and policy.
At equilibrium state ceiled by the agreed policy, the carry traders liquidate their holding positions (unwinding) for profit booking, and at such time the exchange rate prices tend to move from "equilibrium state" to "disequilibrium state" in compliance to the equilibrium exchange rate theory and target zone theory and policy. Thus, unwinding trading is in compliance to the theory and policy.
Comment:
The bullish at slower rate than anticipated and the carry trading more aggressively made on CAD, NZD and AUD currencies and their denominated debt securities. The slower rate of bullish on USDCHF and USDJPY equivalent to the slower rate of bearish on EURUSD and GBPUSD.