Carry Chaos - The Very Visible Hand In Yen Futures

Tyler Durden's picture

With USDJPY near 4-week lows and, as BofAML's Macneil Curry warns "is setting up for a breakdown", we thought a look back at the total and utter chaos that last week's FOMC statement (and press conference) unleashed in futures markets. JPY futures were the only market in the world that was halted as the statement was revealed as Nanex shows below it seemed 'someone' decided that 'carry traders' needed to show the world just how positive what Janet said was... then within 24 hours, chaos was unleashed as the real world algos tried to come to terms with just what the Fed had done. With every asset class in the world predicated on JPY weakness, this market behavior shows just how illiquid and thin the world's risk really is.


Via Nanex,

Trading in Japanese Yen futures had two notable events within a 34 hour period. The first event was a trading halt after release of the U.S. GDP at 8:30 AM (EDT) on June 25, 2014: it was the only instrument in the world that we know of which halted then. The second event was extreme volatility during the opening of the next day's session at 18:00 on June 26, 2014.

1. September 2014 Japanese Yen (6J) Futures - June 25, 2014

2. September 2014 Japanese Yen (6J) Futures - June 25, 2014 - Zoom of Chart 1.

3. September 2014 Japanese Yen (6J) Futures  - June 26, 2014.

4. September 2014 Japanese Yen (6J) Futures - June 26, 2014 - Zoom of Chart 3.

*  *  *

Totally normal, totally human, totally natural market behavior...

And since then JPY has rolled over dramatically and the 'pinned' Nikkei has given up all its gains (with only US stocks stubbornly ignoring it for now)...


But BofAML warns the break is coming in JPY - and thus pressure on all risk assets...

$/¥ is setting up for a breakdown. Get ready.

We reiterate our bearish view on $/¥, targeting 99.21, potentially as far as 97.40. Yes, we hold this view despite being bearish Treasuries. We are looking for a correlation breakdown between the two markets. While $/¥ has not yet closed below the 200d (now 101.70), we think that it is just a matter of time.

Indeed, the entire range trade from the Feb-04 lows, at 100.75, is setting up for a bearish resolution, from which a decent TRADEABLE downtrend should emerge. GET READY.

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nink's picture

< $100 Yen on the horizon

< Yen back to 102 anytime soon

NotApplicable's picture

When I read articles like these, one and only one thing comes to mind.

"How the fuck has Nanex avoided prosecution thus far?"

max2205's picture

And we are Green.....thanks Janet!

PartysOver's picture

Never underestimate the extent to which the TPTB will go to defend their "Good Life".

For the US folks, you only need to look as far as Mississippi's  Senate Election for a classic example.

Kaiser Sousa's picture

Tyler can you get the chart of Silver to show what happened right at the close of the Comex please...

thanks if you can...

101 years and counting's picture

and then Mario announces QEU and risk will be massively back on.  wash, rinse, pass me another beer.

NDXTrader's picture

If anyone here seriously thinks that the BOJ will allow the USD/JPY to get below 100 then you deserve to lose money. Sorry, but they will defend 101 like the Maginot Line and guess what? They can dump as many Yen as they want to in order to do it.

And I mean literally any you think they give a fuck about inflation at this point?

BandGap's picture

I sense the panic, grasshopper.

NDXTrader's picture

By the Japanese or by me? If they are the good neo-post-Keynesians that we know they are then they likely think that inflation is the only thing that can "save" them. Yen goes down, stock market goes up - win/win for them. Which is ridiculous in it's own right since the carry trade doesn't even exist anymore with the US ZIRP-ing. Personally, I don't trade currencies, just look at them in regards to equities.

NotApplicable's picture

Amusing that you use the Maginot Line as an example of an all-out defense.

NDXTrader's picture

Good point, it did crumble rather quickly

Seasmoke's picture

This time it's going to be hard to stop 100 !!!

buzzsaw99's picture

ain't happening with muh muh muh muh my kuroda at the switch.

sandhillexit's picture

never underestimate a country's ability to weaken its own currency.  besides there is extra US paper on offer. a couple good customers have stopped picking up the phone.  

HUGE_Gamma's picture

The Abe guy will unleash a massive dump on JPY in the next 2 months.. 105 soon

Nick Jihad's picture

I'd be grateful, if someone could explain in simple terms, how all the bad news coming out of Japan these days adds up to a stronger yen? Is it that carry-traders are paying back their loans, and thereby anihilating all the yen that they had borrowed into existence, to make those carry-trades in the first place?

TheSecondLaw's picture

Think of it this way:  It's not the Yen that has strengthened, it's the US dollar that has weakened - inevitable when a country prints so much cash;  and this particular plunge against the Yen was triggered by the whopping  2.9% contraction in USA's 1st Quarter GDP. 

pebblewriter's picture

The last time USDJPY closed below the SMA200 was Nov 13, 2012.  Nikkei was 9230 (now 15,120) and SPX was 1376 (vs 1952.)  Is BOJ asleep at the switch?

merchantratereview's picture

Next major support level is the May 20 2014 low, 100.80.....