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.


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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.