Risk Regime Change: Goodbye EUR, Hello JPY

Tyler Durden's picture

As the world flipped its calendar from November to December - risk-assets decided to shift their funding currency and EURUSD lost its ramp-a-bility... (which also helps to explain the unusual 'strength' in EUR as carry-traders buy back their EUR-based funding and rotate to JPY)



Charts: Bloomberg

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Ghordius's picture

now that would make sense and explain a few things

fonzannoon's picture

Bye bye kyle bass?

it seems a few people are not aware of kyle bass's yen play

Glass Seagull's picture



Yen futures been falling since Sept., down 0.70% right now.  I'm sure KB is crushing it on this trade.

fonzannoon's picture

I highly doubt he is crushing anything as he was in long before September. I do actually think he will eventually be right. I was using the material from the actual post by Tyler which seemed to imply that the trend would change from December on to imply that if the post is correct, Bass could feel some pain.

From another website.

"According to the website ValueWalk, citing sources, his fund lost 29% of its value in April, and has really been getting clobbered since inception"


Popo's picture

Further proof that long term macro calls are a hell of a lot easier than timing trades.   Kyle's going to be right.  But the market, as usual, can stay irrational a whole lot longer than you can stay solvent.

Quinvarius's picture

Alternately, FOREX is completely rigged by cooperating central bankers and nothing that happens there has any meaning at all.

NooooB's picture

Yeah, but the DOW is back in lockstep with the Euro. Like it was a year ago..

Aurora Ex Machina's picture

On the subject of "Risk Regime change", Golden Dawn offices in Greece were reportedly bombed Tuesday morning.


Euronews coverage

Telegraph (hello MoM)

Twitter Trend

Photo of the Compound (pre-bombing, via Guardian)


So far, even Greek news sources aren't providing pictures, which is highly unusual.


Let me think of another country in the EU where bombs were common practise. Ah, I remember, Italy in 1969. Or, as the Greeks called it, "Red Sheepskin".

youngman's picture

I think currencies are going to be the playtoy of 2013......and its going to get ugly and mean...

SmoothCoolSmoke's picture

Obama talk. Dow +170. Sheeple like. Boner screwed.

Orly's picture

It's USDJPY, not JPYUSD...

which turns the "regime change" thing on its head, doesn't it?


And it's actually the AUDUSD by proxy.  Either way, the ramps in both xxxUSD crosses haven't finished...so I guess that turns that on its head, too.

Mr Lennon Hendrix's picture

The dollar is worthless.  Best to recognize.

fonzannoon's picture

Orly is there a point where the debt hits a number where you start to question it's sustainability? Or is the debt completely not relevant in your mind?

The dollar sure has hung in there a lot longer than I expected.

Orly's picture

There is no limit to how low the USD can go, frankly, so all this talk about the demise of the dollar doesn't make a lot of sense in the history of things.

The history is that the USD, back in 1913, was by far the biggest kid on the block- and we still are- but imagine going to Spain and buying a house for what amounted to pocket change for most Americans.  Imagine that our exports were virtually non-existent because our dollar was so strong that no one could afford to buy one of our thousand-dollar machines.

The Federal Reserve set about debasing the USD, such that it is now worth about seven cents of what it was back in the day.  And we're still the biggest boy on the block and no one can touch that.  We are the most productive, most resourceful and most competitive country on the planet by a mile.  We are also the smartest because we can afford the bribe the Chinese, Indians and Vietnamese to come here and do our engineering for us.  ;)

I think now, though, the Federal Reserve and Dr. Bernanke in particular are satisfied with our competitive dollar pricing in the global economy.

A brief history of the current crisis also reveals a very important aspect of the USD: the other global currencies, including the Euro and especially the Great British Pound Sterling would not exist today if the Federal Reserve of the United States did not debase our currency relative to theirs, take their money in FX swaps and allow them to use US dollars as global currency.  The main problem with the banking crisis at its beginning was that no one had any dollars!  Everyone was selling assets priceed in Euros and Pounds for US dollars and the entire system started to crater and crater fast.

So, in answer to your query, no, there is no downside limit to the value of the USD (within some reason, of course...) and conversely, there is no upside limit (again with the same caveat...) to debt we can take.  So we devalue our currency another two cents.  And we would still be the biggest boy on the block.

I do wish people (gold bugs...) would try to put this idea into some perspective.  Dr. Bernanke is absolutely correct.  If he wanted the Euro, the Pound and the yen to revert back to their current actual value against the USD, he could do it in fifteen minutes (as he said he could alos do with any inflation...) and that's only because he would have to pick up the phone and arrange a press conference.

"The US is raising interest rates!"  End of story.


fonzannoon's picture

If he said he was raising interest rates the bond selloff that would ensue would make almost every bank/insurance company etc. bankrupt instantly, as they own massive amounts of treasuries. The US itself would not be able to fund it's debt as the interest payment would blow sky high. How do you reconcile that?

Interest rates have to stay at zero and probably go negative from here on out as we take on more debt. Raising rates is not an option. I don't understand why that is so hard for people to comprehend.

Orly's picture

I didn't say that it would be wise for him to do it.  What I meant to say was that if a weak USD were really a concern, it wouldn't take very long to correct that situation.


fonzannoon's picture

I think you are correlating higher interest rates with a stronger dollar. That certainly used to be the case. I hate to say this time is different but I think if they hiked rates that would exasperate the crisis and the dollar would actually sell off worse as it is becomes a reality that we can't pay our debts. It's just a theory though and we won't know until they decide to do it, if they decide to do it.

Mr Lennon Hendrix's picture

She also just stated the dollar could handle a further debasement of 30%.  Since all assets are denominated in dollars I would like to see how the world would handle a price increase of that size.

LawsofPhysics's picture

correct.  The Bernanke is painted into a corner and the gamble that he is making is that the world will tolerate negative interest rates for an extended period of time.  He represents the Fed (a private bank), who believe that there are still considerable real/physical assets in the U.S. to control/purchase.  It is a real gamble, but with everybody devaluing their currency and still many such assets left to aquire, this could go on for a while.  

If you knew what the Fed's intentions were and what they planned to do with all their  assets, then you would know the future (barring WIII of course).


Confundido's picture

I buy Orly. I know what you mean. Now, what would happen if we start seeing defaults in the yankee market? Say, USD denominated bonds from European issuers? The Fed would of course provide more USD funding, via FX swaps, right? Do you think this is sustainable? Because I really think we are going to see defaults, given the recession in the Euro zone.

Second point, I was wrong. Until this morning, I was convinced that we would see gold up when Treasuries begin to be repudiated. But in fact, it is the reverse. Treasuries will begin to be repudiated when gold starts going up, because it will form inflation expectations. Hence, all this manipulation by G7 central banks giving below market lease rates to the cartel banks to short it and cause volatility, so that nobody touches gold for the purpose of storing value. Fine. So, however, with recession, a fall in production will come and with it, an increase in the price of food and other necessary items, which are well hidden from the public with the fucked up CPIs. But you can only create the illusion for so long...And then?

So, yes, I think we still have a long road to walk but...do you really think it can remain like this forever?

fonzannoon's picture

It all comes down to interest rates. Bernanke said in 2009 he would start raising in late 2010. In 2012 he is saying Zirp to 2015. As these chicken head cnbc and bloomberg assholes debate the speed of the recovery. In 2013 he will eliminate guidance so he won't be held to a date in time to raise rates. So the only question left is when does everyone wake up and realize he cannot ever raise them?

My answer is never. Because people only give a shit about their interest rate if they have savings. By 2015 almost everyone will be piss broke except the richy rich, and they have so much fuckin money they don't need interest.

So then what?

Mr Lennon Hendrix's picture

OMG Orly......

Fuck.  I know you mean well but I guess you mean well like economic Profs do.

Lets put this in perspective.  Oil trades inversely the dollar.  If oil rises it crushes GDP.  If the dollar falls GDP gets crushed.  If there is no more GDP then America is not the most productive.

And oil will rise, whether Bernanke uses his Keynesian economic policy to "debase the currency to increase exports" or not.  But if he continues on this path you will be staring $200/b oil in the face sooner rather than later.  GDP goes negative at $185/b. 

As that happens the other currencies will be sold more and more at a premium, furthering the dollars demise.  Gold will especially benefit.

I want to explain this to you so while you day trade you don't lose all your FX spending cash.

Orly's picture

" If oil rises it crushes GDP.  If the dollar falls GDP gets crushed."

Not necessarily.  Without demand-push inflation, oil will not rise that high.  Besides, what do you think our excursions into Pipelineistan have been for?


Confundido's picture

Bernanke can pick up the phone, arrange a press conference and announce the US raising rates as easily as I can get a gun, point it to my head and shoot. Sure, it is easy...Will I do it?

LongSoupLine's picture

Algos have now taken FX as it's bitch.

Everything's a fucking scam...every fucking thing.

Fuck you Bernanke and your fucking global ponzi.

Inthemix96's picture

The risk to the regime will be servere if they come knocking here.

I am a black belt in fucking baseball bats.  You can nearly smell the desperation of these two bit scumbags.

LawsofPhysics's picture

How is this going to work out for E.Z. exports again?  Trade wars to heat up?  The shit gets real when the supply lines break?

Same as it ever was.

Tsar Pointless's picture

No risk to this regime, so long as the plebes keep their heads in the sand. Or elsewhere.

Here's an example of what matters the most to them.


Republican or Democrat, the majority of the wandering mass are the same: Members of "Idiot Nation".

snowlywhite's picture

took you a month...


on the other hand, I was an imbecile too; saw this and bought eur against everything bar jpy, fearing too high volatility. At 8% increase, guess I should've stomach the vol. that didn't even exist...