Equity Index Update
Brad Sullivan
THE UNWINDING CONTINUES…yes the infamous carry trade continues to dominate the trading headlines and collective minds of participants. Just how far and how fast the Yen travels vs. the Dollar, Euro, Kiwi, Rand and Aussie remains to be seen…but the velocity with which it has come so far this week shows that liquidation remains the name of the game. This morning, things were relatively docile in Europe…then the YEN started to pick up strength and before one could blink an eye, the SPH7 dropped from 1405 to 1396. Given the dramatic increase in volatility it should be expected that these moves will continue over the next several weeks.
Yesterday’s action was dramatic and quick. Indeed if one were fortunate enough to buy the dip off the initial opening bell sale, it proved to be a tremendous month of profits by the end of the first hour of trading. The remainder of the session consisted of strong bids lying in wait underneath the higher pricing zones. However, each index failed to hold their unchanged levels – and more importantly were sold lower rather easily in the final hour trading. The impact of today’s carry lower overnight should provide ample opportunity in today’s session.
One of the keys today will be the response to the Yen/Dollar trade…earlier this morning, the YEN traded to a new high for the move, up about +3% on the week vs. the dollar. Since that high print, the YEN has come off a bit and that has corresponded with a bounce in the SPH7 from 1393.50 to 1399.50. Obviously…we can see the trend in the overnight markets in terms of taking their direction from this trade. However, it is not as clear that this indicator will work as well during our day session. In other words…utilize the YEN/Dollar as a trading input, but not as sole discretion for a trade.
