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Carrytrade

BITCOIN|Does the BULLISH trend continue?Bitcoin chart in 4 hours time frame. In the previous analysis, we saw that there was a significant upward movement in the area of demand that we considered. I hope you have used this opportunity well. Currently, Bitcoin is strongly bullish and there are no signs of weakness in the trend, so we should look for more suitable places, areas of valid demand to enter buying positions. As you can see, Bitcoin had an initial correction up to $46,600, but it came back with demand and is currently trading in the range of $48,300! Until this moment, we have not seen a strong negative reaction from Bitcoin, and this means that the power of the Bulls is still high! The demand ranges are ($44,900 to $45,500), ($42,800 to $43,300)respectively! In case of an upward trend, its mid-term targets are $50,500 and $52,700 , respectively!
Long
by Golden_Star1994
AUDJPY: BAMM Breakout Headed for a 50% RetraceI suspect as the Japanese Carry trade is pressured, that there will be an effort made by institutions to convert to AUD in anticipation of Australian Interest Rates potentially rising above US Interest Rates, this would revive the more traditional Australian Carry Trade and serve to reduce the downwards pressure put on the Japanese carry trade while also reducing their overall leverage and should allow them to prolong the Bull Market in equities at least until the spring. Meantime the conversion to AUD should Temporarily push the value of the AUD up higher and given how much leverage would be going from JPY to AUD, I'd suspect the rise we see in AUD to be a bit on the extreme side which could lead to us very quickly seeing AUDJPY reach the more macro Fibonacci retraces between 139 JPY to 191.567 JPY.
Long
by RizeSenpai
4
Bullish Shark on the Japanese Yen Futures Feb 16th ContractThere is a Bullish Shark visible on the Japanese Yen Futures contract expiring on Feb 16th 2024, there is also RSI Bullish Divergence on the 4 Hour Timeframe at this level. A higher low bounce in the JPY from here would likely result in further tightening of the Japanese carry trade, which would be bad for stock and particularly bad for REITs and Financial Institutions. Saying as though it is the Feb 16th Contract that this Harmonic has completed on, I would expect the JPY to rise sharply leading into the expiration of this contract.
CME:6JG2024Long
by RizeSenpai
The Bond Market is Pricing in a Collapse of The Yen Carry TradeThe spread between the US10Y and JP10Y has historically been a great leading indicator of contraction within the Yen Carry Trade and likely will be into the future. If we were to apply TA to it, we can see that the spread appears to be Double Topping and has formed a Bearish Shark at this top as the RSI breaks down and the MACD Diverges. If we are to take this as a warning, then we should expect this spread to go down significantly, and that would be accompanied by the contraction of the Carry Trade, leading to lower liquidity and signfiicantly tighter credit conditions and ultimately a depreciation in market pricing. I think we could see JPY and USD strength during this time but would avoid other currencies.
TVC:US10YShort
by RizeSenpai
2
ZARJPY: Massive Head and Shoulders with Bearish DivergenceIn addition to the Bearish 5-0 I pointed out before on a previous chart, the ZARJPY has also formed a Potential Bearish Head and Shoulders that is visible on timeframes even as high as the monthly with Bearish Divergence on the MACD and RSI. If The Carry Trade truly is to be dissolved, the ZARJPY should be among the currency pairs that are most severely affected, as it has the highest interest rate differential and therefore generates the highest yield for the time being.
Short
by RizeSenpai
ZARJPY: My Bearish Speculation Against The JPY Carry TradeWe have some Bearish Divergence on the ZARJPY, but the main reason I entered this trade was to speculate against the JPY Carry Trade and front-run the potential flight we may get back to the Yen if Japanese Yields were suddenly to go up or even become uncapped during the BoJ meeting tonight. I could have shorted EURJPY, GBPJPY, AUDJPY, or USDJPY instead, but I feel ZARJPY may give a more violent reaction as it is a currency that has generated some of the highest yields vs the JPY thus far, and if that yield were threatened, I think it would move down quite fast compared to the other pairs. I guess as a side note: This might end up being a Bearish 5-0 in the long run.
Short
by RizeSenpai
2
2 FX Shorts with excellent oddsStarting with the pair which makes no sense at current levels, considering the most meager of rate differentials at +2.5% , were it not for the SNB's deranged policy of "supporting the Swiss Franc as an inflation fighting measure" (while Swiss inflation is barely holding at 2%!) and with the Swiss Franc already at nose-bleed levels. CHFJYP; a 50 year SHORT in the making; The main chart is the MXNJPY - SHORT , also the premier carry-trade - while equities are trying to cling to the remnants of an already burst bubble. While the Bank of Mexico has increased the rate differential (versus the static Yen) two-fold, in short order, that rate differential remained the same since 03/2023 while this pair continued on it's upward trajectory an additional 16%, incidentally inline with the SP500's identical increase during the same period; Both of these pairs are at multi-year technical confluences, both pressing against significant resistance and showing distinct patterns of reversal. SHORT & SHORT
Short
by Nemo_Confidat
1
Prime Target: Carry Trades - except for the USDJPY!Sure, the Yen is overly weak on a trade-weighted basis BUT it is the least weak versus the USD! E.g., For any intervention to be effective it ought target just about any other high yielding spread/pair EXCEPT for the USD! Having established that, it is still far more likely that any intervention would target the USD/JPY directly than the rest, if for no other reason but for its success last September (2022). (Last September, dollar longs were extremely overcrowded which amplified the effects of that intervention, and then most of the cash went into carry trades.) Times have changed, though, whether the BoJ will be willing to subscribe to that notion or not. (which is yet to be seen). OK, so where does this potential paradox (or rather, just a dichotomy? ;-) leave one, in trading terms? 1) If there ever was a right time to trade the Japanese Yen against a basket of it's counterparts, now would be it! (Work has almost completed on just such a basket this time with correct weighing. ;-) 2) FX options (especially Gamma changes) have been gauging the potential market effects of the BoJ's various jaw-boning attempts (most of which were summarily ignored by the markets) in support of the Yen, rather accurately. "If it ain't broke don't fix it." Stick with it! p.s. The CHF/JPY is a special case here (not quite a carry trade) as it's eye-watering rise is due to the same, deranged SNB policy which ended in tears, back in 1978-79. (... Switzerland slipping into a far deeper depression than it's trading partners, back then.)
by Nemo_Confidat
2
The Carry Trade With the current aggressive interest rate hikes happening with some of the world's leading central banks due to inflation problems, we figured it would be an ideal time to discuss the carry trade. This post will go into further detail about the carry trade and how it works in the forex market. We will also discuss one of the most popular carry trades to take place in forex history and the risks traders should be wary of when trying to implement this strategy. What is the carry trade? The simple explanation of the carry trade is that a speculator borrows one financial instrument to buy another financial instrument. For example, let's assume that you go into a bank and borrow $10,000, which then charges you a 1% lending fee ($100). You then take that $10,000 and purchase a Treasury bond that pays you 5% a year. Your profit is 4% (minus commissions and other costs). Basically, you have profited from the difference in the interest rate. This is the carry trade in its simplest form. The carry trade in the Forex market The carry trade in the forex market is one of the oldest and simplest forms of forex trading strategies. It was first developed by fund managers to take advantage of the interest rate differentials between currency pairs. A carry trade occurs when you buy a high-interest currency against a low-interest currency. For each day that you hold that trade, the broker will credit you the interest difference between the two currencies (this difference is called the 'interest rate differential'), as long as you are trading in the interest-positive direction. To understand this further, let's give an example: In the forex market, currencies are traded in pairs (so if you buy USD/JPY, you are actually buying the US dollar and selling the Japanese Yen at the same time). You receive interest on the currency position you BUY and pay interest on the currency position you SELL. What makes the carry trade unique in the forex market is that interest payments take place every trading day based on your position. This is because technically, all positions are closed at the end of the trading day in the forex market. You just don’t see it happen if you carry your position overnight due to the fact that brokers close and reopen your position, and then they credit or debit you the overnight interest rate differential between the two currencies (this is also called a rollover or swap). The amount of leverage available from forex brokers has made carry trades very attractive in the forex market. Most, if not all, forex trading is margin-based, meaning you only have to put up a small amount of the position and your broker will put up the rest. Many brokers ask traders for as little as 1% or even less as margin to trade a position. Continuing from our above USDJPY example, let's assume that interest rates are 6% for the US dollar and 1% for the Japanese Yen (so the interest rate differential is 5%). Let us assume that you deposit $10,000 with a broker and decide to buy USDJPY with the intention to carry trade and earn +5% interest a year. Let's say the broker offers you 100:1 leverage and you want to purchase $10,000 worth of that currency. Since the broker is offering you 100:1 leverage, you would only require a 1% deposit for the position; therefore, you hold $100 in margin. Now you have an open USDJPY trade that is worth $10,000 and is receiving 5% a year in interest. To get a clearer picture of this, let's see the image below: What will happen to your account if you do nothing for a year? There are three possibilities. Let’s take a look at each one in the image below: Due to the 100:1 leverage being offered to you, in this scenario you have the potential to earn at least 5% a year from your initial $10,000, but there are huge risks to this (we will get to that later). The infamous AUDJPY carry trade During the early to mid-2000s, traders experienced near-perfect combinations of these conditions across numerous forex pairs, most popularly the AUDJPY. This particular FX carry trade involved going long on the AUDJPY. The Australian dollar has historically yielded higher interest rates than other global currencies. The Bank of Japan has been keeping interest rates low since the mid-1990s in an effort to revive the economy after a stock market crash caused a recession. The Bank of Japan has persisted with its approach to low interest rates, and in 2016, it announced negative interest rates. This means Japanese banks now pay interest on the cash they deposit with the Bank of Japan instead of earning interest on it. AUDJPY Exchange Rate and Interest Rate Differential 2001–2014 As you can see in the image above, the interest rate differential between Australia and Japan was consistently high. Due to the Australian dollar yielding a much higher return on investment compared to the Japanese yen, the situation provided retail traders and big institutions great opportunities for carry trading to occur with this currency pair and reaped huge profits from it. These conditions boomed, especially throughout the early to mid-2000s; however, this seemed to change just before the end of the 2000s. In 2008, with the global recession, the economic conditions surrounding Australian and Japanese investments changed as interest rates in Japan drifted slightly upward from near zero to just above zero, while interest rates in Australia fell considerably. As a result of both countries having their interest rates close to each other, the Japanese yen drastically appreciated against the Australian dollar, which would have caused traders huge losses when implementing the carry trade method during this period. You can see this in the chart below: AUDUSD 3-Month Chart Interest rates have changed since then: as of August 2023, Australia's interest rates are now back up to 4.10%, while Japan's interest rate remains at -0.1%. Risks of the carry trade The biggest risk in a carry trade strategy is the absolute uncertainty of exchange rates. For example, if a trader is buying a currency to profit from that currency pair's interest rate differential and the country of the currency cuts its interest rate unexpectedly, the exchange rate of that currency will most likely drastically fall, which can potentially cause the trader to suffer sudden and big financial losses. Due to this, it is important to look at more than just the interest rates on the currencies before you trade on the forex market. Additionally, if a country’s economic outlook does not look positive, the demand for that country's currency will decrease, especially if the market thinks that their central bank will have to lower interest rates to help their economy. Another important risk factor for traders to consider with the carry trade is that if substantial leverage is used to implement it, then big market moves against the trader's favour could result in losses that may cause margin calls, the position being automatically stopped out, or worse, losing more than your initial deposit and the trader's account ending up in a negative balance. Lastly, global markets and economies have still not fully recovered from the global crash of 2008. Carry trades are very difficult to do now with major forex pairs due to the majority of brokers no longer offering positive swaps on major pairs. Traders have been looking at some exotic currency pairs as viable options because some of their countries' interest rates are still high. Exotics such as the Mexican peso, the South African rand, and the Nigerian naira are all options that many forex brokers offer, with currency pairs featuring USD, GBP, EUR, and even JPY variations. However, exotic currency pairs can be extremely volatile and dangerous as traders are susceptible to experiencing big market moves constantly in both directions, which makes these currencies very unpredictable and can cause traders big losses. These currency pairs can also be very expensive to trade due to the high spreads and possible additional commission costs. 1 Month MXNJPY chart example: The above chart shows that traders have been looking at exotic currencies as alternative options to continue carry trades, though they pose very high risks and can be very expensive to trade. The carry trade, while potentially lucrative and rewarding, can be very dangerous, and you must consider all risk factors if you are looking to implement this trading method. Trading this way with major and cross-currency pairs is very difficult to do now, and we cannot stress enough that you must trade with absolute caution if you’re implementing the exotic currencies into your own carry trading strategy. That being said, we may get to a time again where carry trades are possible with major currency pairs as interest rates are going back up globally in an attempt to recover from the global inflation crisis. Forex brokers may be open again to offer traders positive swaps on majors and crosses. BluetonaFX
Education
by BluetonaFX
24
Why is the Bank of Japan nervous? ...To properly represent (and trade!) the Yen related pairs, it is strongly recommended to create a Yen-based currency basket. (I did attempt to import data into TV from such a basket - weighted by the acceleration differential between the USD, EUR, GBP, AUD, CAD, CHF and a basket of Central European currencies versus the Yen but for some reason I couldn't make that work. I.e., the main chart here represents the next best thing which is an unweighted USD|EUR|GBP|AUD|CAD / YEN basket, to convey the same idea.) The central problem the Bank of Japan is facing at this moment, continued acceleration of rate (and thus, price) differentials relative to the other G-20 currencies. (I.e., The Yen price levels, alone, would not cause the same concerns.) On the top of it, China's PBC decided to dump massive amounts of Yen (and Euro) reserves, still actively taking place as of last Friday. The now solid uptrend in Japanese economic indicators also continue to add to the upward pressures, leaving the BoJ with ever less wiggle-room. FX Yen options implied volatility - 8.34%-8.93% - is running under historical levels, (i.e. they are considered "cheap") despite the increased Call buying, as of late. Ultimately, what the BoJ will be forced to do here, and most importantly When(?) and to what extent, is still open to debate but two aspects of this issue became rather obvious; 1) At this point markets, in general, seem to maintain a complacent stance (see options pricing) regarding the significance and potential magnitude of a BoJ move; 2) This is a 30-year, $3+ Trillion Dollar short position which will have to be unwound (covered) in the event of a BoJ interest rate hike and as such, liquidity will be a major issue! To illustrate the last point - above -, this was the recent EURJPY action following a rumor that the BoJ "may do something";
by Nemo_Confidat
2
The Rand in the rocky credit markets The economic calendar is wild this week so I thought it would be best to do a deep fundamental dive into the USDZAR . All the attention will be on the Federal reserve tomorrow and whether or when they will pause their rate hikes. We need to look past the hype around the interest rate and the “pivot" narrative. Focus should however be on how the markets will cope with the Fed’s liquidity drain and how it will impact the future price of money ( ie . Interest rates). Before we kick-off, correlation does not imply causation... I’ll start by explaining the chart you’re looking at. What you’re seeing is the positive correlation between the USDZAR and the difference between the South African government bond 10-year yield (ZA10Y) and the US 10-year treasury yield (US10Y). The interest rate differential is referred to as the carry trade potential. Investors can borrow money on the cheap from developed low-risk markets and invest the borrowed money in riskier destinations to earn more interest. The interest rate difference is then pocketed by the investor. The preferred vehicle to capitalise on the interest rate differentials between two locations are government bonds (they are low risk and liquid). The reason for the positive correlation between the USDZAR and the bond yield differential is because when there is risk-on sentiment in the market, investors tend to move funds out of the safety of US treasuries and into riskier assets. The sell-off in US treasuries causes US10Y yields to rise (decreasing the bond yield differential), and the rand tends to appreciate in risk-on phases of the market, citrus paribus. (Decreasing bond yield differential; USDZAR decrease due to rand appreciation). Conversely, when investors are risk-off they run to the safety of US treasuries. The buying of US-treasuries lowers the US10-year yield which increases our bond yield differential. We all know how rapidly the rand can depreciate in risk-off phases when the liquidity wave pulls back to the US, leaving the rand on the rocky shore. (Increasing bond yield differential; USDZAR increases). Our strong correlation however weakened in August 2022 when the US 10-year yield rocketed higher after the Fed started their hiking cycle. Let’s zoom in on the Fed since its Fed week. The most important chart in the market , the Fed’s balance sheet: www.federalreserve.gov . The Fed has so far tapered roughly 5.52% off its balance sheet since April 2022. The Fed is selling treasuries to taper its balance sheet and to soak up liquidity from the market (if there will be enough buyers, only time will tell). This is rand negative. Now let’s get to where all this week’s focus will be, the Fed’s interest rate decision. The Fed is expected to slow its rate hikes to 25bps this week and push rates from 4.50% to 4.75%. The Fed tends to follow the US02-year yield (US02Y) as guidance on its interest rates and it seems as if the US02-year yield has topped out between 4.75% and 5.00%. The Fed pause seems near, and the latest inflation figures from the US supports the narrative that the Fed has managed to cool inflation. The most concerning thing in the market currently is the inverted yield curve: History doesn’t repeat itself, but it rhymes. For the Fed to normalise the credit markets it will have to pause rates. That is usually when something the market breaks and the Fed is forced to cut rates and inject liquidity into the markets. When the Fed pushes easy money ( QE or whatever buzz phrase they'll use) into the market investors rotate from longer dated bonds to shorter dated bonds. To conclude, if and when the Fed pauses its rate hikes, the US10-year yield will melt higher which could be rand positive based off our correlation analysis. Just have popcorn (and gold , silver and other real assets) ready for when the Fed is forced to cut rates/ pivot because that will be caused by arguably the biggest credit market implosion in the history of fiat money. To end off I leave you with the words of Zoltan Pozsar: "commodities are collateral, and collateral is money."
by Goose96
Position Trading CHF/HUF (short) as a Carry Trade!The overnight rollover for this pair is so high and it's on point with the trend that I'm going to do a position trade with this pair for a couple months. A couple days holding this pair will pay for the spread. I'm just trying to find a pair to hedge with this pair so i can limit any losses that may incur but yeah the overnight swap for going short is ridiculously high but the only problem is the volatility due to it being an exotic pair. Hungary is also not doing to great economically so it will have to be watched closely, but as long as i can hedge a little bit of the exposure it would put me more in a peace of mind to do this Carry Trade
Short
by JasonLeighton
High Risk, Long Term Carry Trade! TRYJPY!This is my high risk, long term carry trade for 2023 (opened in 2022, looking to add to my position further). The swap rate is very attractive - to provide some insight, I have received a 3% account increase since opening my first long position in 2022, through daily interest receivables. The Fundamentals... Turkey has potential. Exports are climbing. The country needs more stability and greater global confidence - Turkey is greatly lacking both. I believe that the currency is so heavily short, that any sign of monetary policy change could cause the Lira to rocket. Potentially creating some large volatile upside moves. With the possibility of a global recession, the Lira could also see buying momentum, as emerging markets often perform well during times of international recession. Current Technical Reasons... Price is nearing all-time lows and daily horizontal support. TRYJPY is also testing bearish channel support area. Don't get me wrong, the Lira could fall much further - it has been in extreme decline for around 15 years! This is considered a high risk trade.
Long
by Samuel_Morton_Trader
1
EUR/JPY - BUY SET UP ON ECB RATE HIKES The EURO now sits under 138.000 on the exchange rate, a key resistance level that will now surely break after European Inflation hit 8.1% for the month of April 2022, igniting the debate about whether the ECB should be raising rates at 0.50% increments instead of 0.25% increments as signaled by Christian Legard. With European Bond Yields climbing and paying a premium over Japan, the EURO will likely continue to strengthen against the YEN as interest rates rise in Europe. The overnight carry trade will start to become profitable for the EURO into 2023, which is likely to attract investors into buying the currency pair.
Long
by KayansMarkets
EUR/CAD - Long Set Up As ECB Signals Rate Hikes Are ComingThe EURO is likely to strengthen against the Canadian Dollar as the European Central Bank signals interest rates are going up in July and September, to move the overnight cash rate from -0.50% to 0.00%. The reason the EURO will strengthen is down to the fact that interest rate differentials will narrow from the market's previous expectation, so investors who are short EUR/CAD will likely look to cash in on the carry trade as it's now hit its peak unless the Bank of Canada goes further then markets expect with rate hikes. Oil prices are also a bullish beneficiary to the Canadian dollar, but Oil looks to have peaked since it hit $130.00 on March 8th 2022.
Long
by KayansMarkets
NZD/USD - BUY SET UP AS INTEREST RATES IN NEW ZEALAND RISE We are highly likely to see a strong recovery in the New Zealand Dollar Against the U.S Dollar as interest rates in New Zealand continue to rise. Markets expect the Reserve Bank of New Zealand to raise the cash rate to 3.50% by year-end, which will be a premium 0.75% to 1.00% Interest rate over the U.S. This means any investors holding short positions in NZD/USD will lose money holding the position open overnight. The U.S Dollar has been strong in recent weeks as stock markets have fallen due to the Federal Reserves' commitment to raising interest rates aggressively to contain inflation running at 8.30%. When stock markets fall globally, investors historically sell international currencies and flood into the safety of the U.S Dollar, as its the worlds reserve currency. However, when stocks recover as they always do, investors will quickly sell dollars and move back into international currencies as they invest globally in equities again, causing the dollar to weaken in exchange rates and push up NZD/USD.
Long
by KayansMarkets
Dear Elon MuskDear @elonmusk : I have heard you are facing a huge tax bill. However, there is an instrument which can help you make money. It is NZD, New Zealand Dollars, as known as Sheep Coin and Kiwi Coin. I know you like to find profit from the trips of coins to the moon. I think nzd is a nice instrument, but it is facing offensive spam from hostile market makers. The news writters gave us two execuses. One is covid19, especially the emerging B.1.1.529 variant. I don't think so because New Zealand is one of countries encountering low impact from covid19. New Zealand is far away from Europe, Asia and America, so people are less willing to travel from and to New Zealand. The other is fear of Fed taper. I don't think so either because nzd is in the progress of increasing interest rate. Although Fed may consider speed up taper, they are still in the qe state. I only believe two reasons. One is New Zealand may spend a lot of money to buy oil. The other one is spam from market makers. It is because a lot of investors know to buy nzd, so market makers try to make us unprofitable. Conclusion Can you help us punishing those market makers and bring the justice back to the nzd investors? Best Regards clocks156t174 and other nzd investors
Long
by clocks156t174
Carry Trades, Margin Rates and all the FakesFor some strange reason the retail trade still appears to believe that the good old stand-bys are working as carry trades" ( AUDJPY , NZDJPY , GBPJPY , etc.) The fact remains that today, those don't even make the Top 5 of professional traders' (e.g., the industry) preference list. Interest rate differentials combined with existing margin rates make most of the majors crosses a very unappealing proposition as far as carry trades are concerned. Because of this the industry has moved on, quite some time ago. (As is the nature of the present, speculative bubble.) As for the top 5 of the majors, it's mostly about the US Dollar ; 1) USDCHF 2) USDJPY 3) EURUSD 4) NZDCHF (This one is likely to drop a few places, soon.) 5) CADCHF Then, there is the rampant "interest" (i.e, speculation) in all things BRIC vs. G10, for reasons which should be self evident. (Interest rate differentials, capital flows, etc.) I.e., MNX, CNH , BRL , ZAR , TRY versus the EUR, JPY and the USD. Thus, if one happens to be looking for volatility and low-hanging fruit out there, these FX pairs are deserving a fresh look. (They are volatile, though thus, be prepared!) Here is the "Central Bank Score Board"; ------------------------------------------------ - Swiss National Bank -0.75% - Bank of Japan -0.10% - Federal Reserve 0.00%-0.25% - European Central Bank 0.00% - Bank of England 0.10% - Reserve Bank of Australia 0.10% - Bank of Canada 0.25% - Reserve Bank of New Zealand 0.25% - Central Bank of Brazil 2.00% - Reserve Bank of India 4.00% - Reserve Bank of Russian Federation 4.25% - People's Bank of China 4.35%
by Nemo_Confidat