Monday, November 12, 2007

Carry Trade Unwinding

The AUD/JPY carry trade has unwound heavily this week. We are currently trading at about 97.045 Yen per Austrailian Dollar. We touched off of a low of just above 96.000 around the US stock market open at 6:30am. This is due to a strong positive correlation of the Yen strength relative to the US dollar's strength since the Japanesse economy is heavily based upon exports to the US. The US stock market has been trading positive the last few hours and I have re-entered the carry trade. I placed my first postion at 8:00am at 96.257 with a S/L of 95.900. There appears to be a fair amount of resistance around the 96.000 level on the daily chart and I am allowing myself 10 pips of volatility around this resistance level. An initial attempt to average in another 350 units in had my stop hit as the stock market pulled back around 10:40am.
The below chart shows the relative correlation of SPY to the AUD/JPY pair. The USD/JPY shows this same correlation. 109.000 represents a solid support level of the Yen and fundamnetally it should hold at the level and begin to weaken again.
I am currently waiting for SPY to hit 146.00 to leg in another 350 units. I suspect that if the US markets close on positive gains then the Nikkei should have a solid day tonight and the Carry trade should hopefully get some upward momentum. Tight stops are the key right now.

1 comment:

Drunkcaballo said...

All stops were hit as the market tanked at close. Im back in on the news that the rate in Japan is staying at .50% which is weakening the yen. SPY futures are up as well...lets hope for a postive day in the US and get the Carry Trade started again!