This is What a Carry Trade Unwind Looks Like Posted on May 21, 2010 by Yves Smith Ouch. The media has been fixated with the euro versus the dollar, and has paid less attention to some of the dramatic action on other fronts. Mrs. Wantanabe seems to be shedding risk, big time. Post navigation ← Mosler: Fed’s Currency Swaps – A Backdoor Way to Lower US Interest Rates Is Germany Going to Trigger a Lisbon Treaty Renegotiation? → Subscribe to Post Comments 7 comments bob May 21, 2010 at 1:40 am EURAUD is even better, almost an 11 % move to the top from Sunday. Its a little better now, at up 9%. The daily chart is going to be in text books for what a carry unwind looks like. Abhishek May 21, 2010 at 1:44 am Currencies have become highly volatile in recent times affecting normal people who have to deal with foreign currencies in the normal course of business.Some small business who depend on export earnings are thrown in severe stress due to these wild movements. Wonder if these continued monster movements will lead to a more stable currency like “gold” or make people enter into more hedges which are a form of a global business tax ab initio May 21, 2010 at 2:43 am Some folks have taken some nice losses! It looks like we have some deleveraging going on – would that cascade into folks in panic – getting out of all risk trades?? And when do we have coordinated moves from Uncle Bennie and the other central banks to crank up the presses even more? The Rage May 21, 2010 at 6:06 am Please, considering the presses aren’t “ramped up” now(come down to Texas, my cousin lives right next to one of them, they are moving……..slowly) I doubt it. I don’t see deleveraging, I see a correction as slower economic growth is coming in the 2nd half. Cassandra May 21, 2010 at 8:31 am After the universal unwind of crowded trades beginning in Equity Quantland in ’07 migrating elsewhere in ’08, one would have thought that participants might have acquired some of the Fear of God (read: respect) for the small size of the exit orifice in respect to over-crowded, over-hyped seeming one-way bets. Leverage, coupled with the rise of “professional” trend-following/momentum-oriented strategies and the easy-access of their cohorts, the electronic herd egged on as it were by real-time media and “analysis”, creates an environment where divergent overshoot followed by cascade seemingly dominates – at least until until sufficient numbers of punters are slaughtered, and available leverage reduced, to redress the balance towards investment longer-frames. Skepticus Maximus May 21, 2010 at 9:22 am Wow! I read the linked article (from the Times Online, August 2007, about Japanese women massively speculating in FX). A few comments: First, it was weird reading that article and knowing what, from the perspective of the author and those women, was the future (namely massive losses). It’s like re-reading all those crazy stories about Dot.com day-traders. Second, I’ve learned through long experience that when an article about a serious subject gets “sexed up” it means the author/publication is being amateurish. Two common ways of sexing up an otherwise weakly-written article is to actually throw in some sex (focusing on a politician’s extramarital affair in an article supposedly about tax law, for example), or to go with a gender-war angle. The author (Grainne Gilmore) in that article went with number two. Results were as expected. SM Sean May 21, 2010 at 6:30 pm FTalphaville article from 14th May 2010 showing that Mrs Watanabe was long approx. AUD$28billion on FX margin accounts. Underlying currents on the AUD side, RBA announced that there will be a decent pause in rate rises, Labor gov’t proposed Super Mining Tax, and concerns over a slowing China due to Europe’s problems. http://ftalphaville.ft.com/blog/2010/05/14/231661/the-great-aussie-yen-unwind/ Comments are closed. Tip Jar Please Donate or Subscribe!