The Ultimate Contrarian Trade - Short NZD, Long JPY

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...



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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