Wednesday, March 7, 2007

Japanese Yen

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Sally Limantour

After a break in the overnight market the yen is now holding firm above 86.00 level in the futures market. There was a piece about the yen in Market News. Apparently State Street developed an indicator called the, “Japanese Yen Foreign Exchange Flow Indicator, or FXFI that makes a point that over the last six months the average short yen position established was 119.70. They assess the majority of yen shorts were probably put on above 118.00 (86.00 level in the yen futures) and,

“Thus institutional investors are significantly underwater, even when one takes into account positive carry. We believe that these accounts will use any rallies in dollar-yen to reduce their short yen exposure and limit further losses.”

It is interesting that State Street only goes back six months. The carry trade has been something that has been going on for years and most likely the level is closer to levels from Jan 2005 at the 105 level (98.00 level in futures) as Barbara Rockefeller discusses in the March issue of Currency Trader Magazine, The Yen: Canary in the Currency Coalmine (www.currencytradermag.com). I also suggest an article published yesterday in the Economist magazine called, The Yen also Rises (www.economist.com).

Assuming this is true, we are not close to breakeven levels and we would most likely see massive liquidation prior to that. Keep that on your radar.

Long yen positions are held with the next target level coming in at 88.43 (Upper Bollinger Band on JY H7 Weekly Chart).

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