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The Ultimate Contrarian Trade - Short NZD, Long JPY

Tyler Durden's picture




 

Options prices have been biased for JPY weakness for a while. Positioning across many segments is drastically short JPY as everyone and their pet giraffe Roger knows that Abe will demolish the JPY with all his anti-diarrheal might. The problem is - everyone knows; and as Morgan Stanley's position tracker below shows, JPY is hugely short and on the exact opposite side, traders are drastically long the NZD. The NZDJPY cross has recently broken out and traded back to September 2008 levels. The breakout perfectly retraces 50% of the 2007-2009 plunge in the cross. While the world seems full of traders who claim to be contrarians, the true contrarian trade right now is short NZD, Long JPY (an oft-used carry pair) and these technicals suggest the pair could be the highest beta risk-off trade currently.

NZDJPY touched its 50% retracement...

 

CFTC positioning for JPY is the most short ever...

 

and positioning for NZD is the most long ever - and look at how rapidly sentiment shifts...

 

and based on Morgan Stanley's FX positioning, it certainly seems like the consensus trade is long NZD, Short JPY...

 

Methodology

MS Flow – Our internal flow data tracks all spot and forward trades transacted by Morgan Stanley FX globally.

IMM – We use the U.S. Commodity Futures Trading Commission’s IMM report to track positioning of noncommercial traders.

Toshin – The Toshin accounts are Japanese foreign currency investment trusts that seek yield abroad. They typically cater to retail investors and offer a higher return by investing in foreign assets on a currency un-hedged basis.

Beta – As an alternative proxy for positioning, our Beta-Tracker measures one-month rolling betas of currency managers’ and global macro hedge funds’ daily returns on major currency indices.

Sentiment – The Daily Sentiment Index gathers opinions on all active US futures, Eurozone interest rates, and Eurozone equities futures markets.

 

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Mon, 12/17/2012 - 12:02 | 3071172 slaughterer
slaughterer's picture

Long JPY/Short NZD: suicide kamikaze trade.  Let's all get to work on this death trade against Gundlach the god.  The ZH documentation on the positioning and technicals is impressive.  Time for Gundlach to face Tyler in the fight club basement.

Mon, 12/17/2012 - 12:07 | 3071187 Cult_of_Reason
Cult_of_Reason's picture

You sound so much like dancing Chuck Prince telling Michael Burry that shoring subprime in 2007 was a "suicide kamikaze trade".

Mon, 12/17/2012 - 12:10 | 3071201 slaughterer
slaughterer's picture

The potential rewards are quite attractive, but the pain if it reverses against you--depending on how leveraged you position it--would be pretty unbearable for a small player.  I am tempted to put this trade on at mild leverage with this ZH time stamp just to see....

Mon, 12/17/2012 - 12:20 | 3071212 idea_hamster
idea_hamster's picture

The ultimate contrarian trade?

Perhaps the ulitmate contrarian trade is short (POT, farmland, and XOM) + long (Argentine bonds and short-term options on the Greek market), but then, what do I know?

Mon, 12/17/2012 - 12:30 | 3071234 CPL
CPL's picture

http://www.news.com.au/national/diesel-shortage-fuels-taxis-crisis-for-t...

http://www.abc.net.au/rural/vic/content/2012/12/s3652164.htm?site=centra...

http://www.bloomberg.com/news/2012-12-10/east-australia-may-face-gas-sup...

 

Throw Australian short on top of the NZ.  both countries are falling apart in the exact same way South Africa did in terms of energy needs.

 

Through the floor and on an island cut off from the energy supply because they are short energy to make energy.  Good luck to all.

Mon, 12/17/2012 - 12:32 | 3071242 malikai
malikai's picture

It's not about leverege; it's about timing. And as far as I'm concerned, I wouldn't touch it as long as it's reverting like this.

http://blog.quantsig.net/2012/12/17/nzdjpy/

But that is a long way down..

Mon, 12/17/2012 - 12:35 | 3071255 CPL
CPL's picture

Shit.  That's too much rope to hang with.

 

Slaughter I'm going to have to go with Malikai on this.  Too much wiggle room and the central banks are in position to keep dealing the currency pain trade.

Mon, 12/17/2012 - 12:36 | 3071258 fonzannoon
fonzannoon's picture

I like Gundlach. how do we mush Gross?

Mon, 12/17/2012 - 12:37 | 3071263 prains
prains's picture

Just go long All Blacks and short the "land of the rising sum" 

Mon, 12/17/2012 - 12:06 | 3071190 Schmuck Raker
Schmuck Raker's picture

Risk-off trade?

I cannot conceive of any reason for anyone to ever need a risk-off trade.

/sarc

Mon, 12/17/2012 - 12:08 | 3071194 fuu
fuu's picture

I'll just keep stacking if that is ok.

Mon, 12/17/2012 - 12:12 | 3071208 TooBearish
TooBearish's picture

o hell yeah Ty!

Mon, 12/17/2012 - 12:23 | 3071216 scatterbrains
scatterbrains's picture

copper seems to be rolling over... is this signaling a dollar rally just ahead ?

http://fiatflaws.blogspot.com/

Mon, 12/17/2012 - 12:33 | 3071247 CPL
CPL's picture

Worse.

 

Currencies are going to be rolling over now until next March taking their countries with it.  USD strength is only an indication of people escaping, not of strength.

 

Ever play musical chairs.  Song plays, each turn one man out. 

It's like that, except with Trillions of your dollars in currencies that won't be able to afford the material they are printed on in three months.  Fun huh? 

Mon, 12/17/2012 - 12:28 | 3071227 Capitalist
Capitalist's picture

Going short NZD and long JPY is like standing in front of a bus with momentum in recent weeks. No doubt JPY is bid on a weekly time frame with the sell-off only happening in the last 2 months.

The other problem is NZD/JPY is negative carry so holding over a long period is costly.

I'd wait for a reversal or some macro event before shorting NZD/JPY... the trend is your friend.

Mon, 12/17/2012 - 12:46 | 3071298 steveo77
steveo77's picture

Silver and Gold Prices Target
Give yourself a Christmas Gift!

http://oahutrading.blogspot.com/2012/12/currency-wars-2012.html

Mon, 12/17/2012 - 12:48 | 3071304 GFORCE
GFORCE's picture

Thomas Stolper will be preparing a long call right now!

Mon, 12/17/2012 - 12:55 | 3071324 slaughterer
slaughterer's picture

LONG FXY as of today.  Thanks Tyler.  

Mon, 12/17/2012 - 13:56 | 3071485 JamesBond
JamesBond's picture

yes - long the yen.  inflation is returning to japan.  

 

jb

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