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MXNJPY

Prime Target: Carry Trades - except for the USDJPY!Sure, the Yen is overly weak on a trade-weighted basis BUT it is the least weak versus the USD! E.g., For any intervention to be effective it ought target just about any other high yielding spread/pair EXCEPT for the USD! Having established that, it is still far more likely that any intervention would target the USD/JPY directly than the rest, if for no other reason but for its success last September (2022). (Last September, dollar longs were extremely overcrowded which amplified the effects of that intervention, and then most of the cash went into carry trades.) Times have changed, though, whether the BoJ will be willing to subscribe to that notion or not. (which is yet to be seen). OK, so where does this potential paradox (or rather, just a dichotomy? ;-) leave one, in trading terms? 1) If there ever was a right time to trade the Japanese Yen against a basket of it's counterparts, now would be it! (Work has almost completed on just such a basket this time with correct weighing. ;-) 2) FX options (especially Gamma changes) have been gauging the potential market effects of the BoJ's various jaw-boning attempts (most of which were summarily ignored by the markets) in support of the Yen, rather accurately. "If it ain't broke don't fix it." Stick with it! p.s. The CHF/JPY is a special case here (not quite a carry trade) as it's eye-watering rise is due to the same, deranged SNB policy which ended in tears, back in 1978-79. (... Switzerland slipping into a far deeper depression than it's trading partners, back then.)
by Nemo_Confidat
2
The Carry Trade With the current aggressive interest rate hikes happening with some of the world's leading central banks due to inflation problems, we figured it would be an ideal time to discuss the carry trade. This post will go into further detail about the carry trade and how it works in the forex market. We will also discuss one of the most popular carry trades to take place in forex history and the risks traders should be wary of when trying to implement this strategy. What is the carry trade? The simple explanation of the carry trade is that a speculator borrows one financial instrument to buy another financial instrument. For example, let's assume that you go into a bank and borrow $10,000, which then charges you a 1% lending fee ($100). You then take that $10,000 and purchase a Treasury bond that pays you 5% a year. Your profit is 4% (minus commissions and other costs). Basically, you have profited from the difference in the interest rate. This is the carry trade in its simplest form. The carry trade in the Forex market The carry trade in the forex market is one of the oldest and simplest forms of forex trading strategies. It was first developed by fund managers to take advantage of the interest rate differentials between currency pairs. A carry trade occurs when you buy a high-interest currency against a low-interest currency. For each day that you hold that trade, the broker will credit you the interest difference between the two currencies (this difference is called the 'interest rate differential'), as long as you are trading in the interest-positive direction. To understand this further, let's give an example: In the forex market, currencies are traded in pairs (so if you buy USD/JPY, you are actually buying the US dollar and selling the Japanese Yen at the same time). You receive interest on the currency position you BUY and pay interest on the currency position you SELL. What makes the carry trade unique in the forex market is that interest payments take place every trading day based on your position. This is because technically, all positions are closed at the end of the trading day in the forex market. You just don’t see it happen if you carry your position overnight due to the fact that brokers close and reopen your position, and then they credit or debit you the overnight interest rate differential between the two currencies (this is also called a rollover or swap). The amount of leverage available from forex brokers has made carry trades very attractive in the forex market. Most, if not all, forex trading is margin-based, meaning you only have to put up a small amount of the position and your broker will put up the rest. Many brokers ask traders for as little as 1% or even less as margin to trade a position. Continuing from our above USDJPY example, let's assume that interest rates are 6% for the US dollar and 1% for the Japanese Yen (so the interest rate differential is 5%). Let us assume that you deposit $10,000 with a broker and decide to buy USDJPY with the intention to carry trade and earn +5% interest a year. Let's say the broker offers you 100:1 leverage and you want to purchase $10,000 worth of that currency. Since the broker is offering you 100:1 leverage, you would only require a 1% deposit for the position; therefore, you hold $100 in margin. Now you have an open USDJPY trade that is worth $10,000 and is receiving 5% a year in interest. To get a clearer picture of this, let's see the image below: What will happen to your account if you do nothing for a year? There are three possibilities. Let’s take a look at each one in the image below: Due to the 100:1 leverage being offered to you, in this scenario you have the potential to earn at least 5% a year from your initial $10,000, but there are huge risks to this (we will get to that later). The infamous AUDJPY carry trade During the early to mid-2000s, traders experienced near-perfect combinations of these conditions across numerous forex pairs, most popularly the AUDJPY. This particular FX carry trade involved going long on the AUDJPY. The Australian dollar has historically yielded higher interest rates than other global currencies. The Bank of Japan has been keeping interest rates low since the mid-1990s in an effort to revive the economy after a stock market crash caused a recession. The Bank of Japan has persisted with its approach to low interest rates, and in 2016, it announced negative interest rates. This means Japanese banks now pay interest on the cash they deposit with the Bank of Japan instead of earning interest on it. AUDJPY Exchange Rate and Interest Rate Differential 2001–2014 As you can see in the image above, the interest rate differential between Australia and Japan was consistently high. Due to the Australian dollar yielding a much higher return on investment compared to the Japanese yen, the situation provided retail traders and big institutions great opportunities for carry trading to occur with this currency pair and reaped huge profits from it. These conditions boomed, especially throughout the early to mid-2000s; however, this seemed to change just before the end of the 2000s. In 2008, with the global recession, the economic conditions surrounding Australian and Japanese investments changed as interest rates in Japan drifted slightly upward from near zero to just above zero, while interest rates in Australia fell considerably. As a result of both countries having their interest rates close to each other, the Japanese yen drastically appreciated against the Australian dollar, which would have caused traders huge losses when implementing the carry trade method during this period. You can see this in the chart below: AUDUSD 3-Month Chart Interest rates have changed since then: as of August 2023, Australia's interest rates are now back up to 4.10%, while Japan's interest rate remains at -0.1%. Risks of the carry trade The biggest risk in a carry trade strategy is the absolute uncertainty of exchange rates. For example, if a trader is buying a currency to profit from that currency pair's interest rate differential and the country of the currency cuts its interest rate unexpectedly, the exchange rate of that currency will most likely drastically fall, which can potentially cause the trader to suffer sudden and big financial losses. Due to this, it is important to look at more than just the interest rates on the currencies before you trade on the forex market. Additionally, if a country’s economic outlook does not look positive, the demand for that country's currency will decrease, especially if the market thinks that their central bank will have to lower interest rates to help their economy. Another important risk factor for traders to consider with the carry trade is that if substantial leverage is used to implement it, then big market moves against the trader's favour could result in losses that may cause margin calls, the position being automatically stopped out, or worse, losing more than your initial deposit and the trader's account ending up in a negative balance. Lastly, global markets and economies have still not fully recovered from the global crash of 2008. Carry trades are very difficult to do now with major forex pairs due to the majority of brokers no longer offering positive swaps on major pairs. Traders have been looking at some exotic currency pairs as viable options because some of their countries' interest rates are still high. Exotics such as the Mexican peso, the South African rand, and the Nigerian naira are all options that many forex brokers offer, with currency pairs featuring USD, GBP, EUR, and even JPY variations. However, exotic currency pairs can be extremely volatile and dangerous as traders are susceptible to experiencing big market moves constantly in both directions, which makes these currencies very unpredictable and can cause traders big losses. These currency pairs can also be very expensive to trade due to the high spreads and possible additional commission costs. 1 Month MXNJPY chart example: The above chart shows that traders have been looking at exotic currencies as alternative options to continue carry trades, though they pose very high risks and can be very expensive to trade. The carry trade, while potentially lucrative and rewarding, can be very dangerous, and you must consider all risk factors if you are looking to implement this trading method. Trading this way with major and cross-currency pairs is very difficult to do now, and we cannot stress enough that you must trade with absolute caution if you’re implementing the exotic currencies into your own carry trading strategy. That being said, we may get to a time again where carry trades are possible with major currency pairs as interest rates are going back up globally in an attempt to recover from the global inflation crisis. Forex brokers may be open again to offer traders positive swaps on majors and crosses. BluetonaFX
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by BluetonaFX
24
MXNJPY - (massive) SHORT!The BoJ, if anything, made it's "guidance" even murkier (as if that were anyway possible) with it's most recent policy announcements. E.g., let's just say that the Yen, currently residing just below the miner-frog's hind quarters, has a better chance to start working it's way higher than otherwise. Simultaneously, the Mexican Peso, having just completed a couple of moon-shots (versus the ZAR and the USD, among others) is well positioned for a pause for the cause to catch it's breath. This pair, being one of the premier carry-trades, is also a prime Short candidate to coincide with the much anticipated global equities weakness. Waiting on a Daily Reversal or to see whether this pair finds in itself to make a final push for the Stop Hunt at 8.72. (Don't bet on it!) Look for a Short Entry , anywhere here, with a short target around 6.50 ( ~25%). (... the completed cypher is on the Monthly(!), i.e., it is very powerful!) Here is the 480 min.;
Short
by Nemo_Confidat
MXNJPY technicaly based forecast 📌Short intro: I am full time trader - analyst * High accuracy of ideas * Technicaly and Fudnamentaly side in analysis * Comment if have any questions or want to send support * Price action - FIBO - Candl pattern * FX - STOCK - CRYPTO * Simple ideas 💡 MXNJPY technicaly based idea, technicaly indicators showing we can expect higher recovery phase, we can see price is on border of supportive trend line, based on candels formation expecting to see break of trend line and push up in price till FIBO 0.382 📌Have on mind, trading involves risk, check idea on your own tactic, if have questions pls comment! Thanks on supporting! All best, good luck!
by UnknownUnicorn3983388
USD PRESIDENTIAL ELECTION - SELL MXNJPY - RISK & SENSITIVITYPresidential Election - Trump wins - MXN more sensitive than USD, Yen to pick up the risk-off shift: 1. Positioning for a trump win is much more interesting than a hilary win but nonetheless both should be profitable at some level. My number 1 position will be SHORT MXNJPY for a number of reasons 1) MXN has been very sensitive to the USD election given trade claims made by trump which would likely have a greater than brexit effect on the Peso. This in mind however MXN has been rallying recently as Trump winning odds have filtered into more of a tail probability. Nonetheless this just opens up great opp for profit in the even he does win (e.g. MXNJPY has rallied from 5 to 5.5 in the past few weeks as trump winning is being discounted, this opens up a whole 500pips of reward in the event he does win and MXN is shorted due to its sensitivity). - Further the reason i have chosen XXXJPY rather than XXXUSD as a denominator for the MXN short is because JPY is likely to rally as risk sentiment sours given trump is likely to create great global geopolitical tensions, thus risk-off demand is likely to trade through the roof. Not to mention being long USD vs MXN also will have muted gains given USD is also likely to be a political-economic victim of trump win volatility. - Term structure for the MXNJPY shorts imo will play much like GBPXXX downside has, the Trump uncertainty is likely to weigh on both the USD and MXN until at least the end of the year given policy intervention/ settling in will take this time. Thus i will be running this position for several weeks after election (i dont think we will see anyone buying the dip this side of 2017. Presidential Election - HIlary wins - Long MXNJPY possible but USDJPY bids perhaps makes better sense: 1. The inverse of the above is obviously to buy MXNJPY in the event of a Hilary win. HIlary imo is the neutral decision given her lust to be in the pockets of corporations. MXNJPY bids make equal sense however i think USDJPY will be better suited since MXNJPY forgo's the added topside USDJPY will gain through the FOMCs likely Dec hike plus MXNJPY has already rallied 10% in recent months into the election so calls for futher topside will likely be limited. USD on the other hand has remain relatively neutral in terms of Presidential flows. Yen will devalue in both cases as risk-off demand is flushed out. Trading Strategy - Trump SHORT MXNJPY, Hilary LONG USDJPY: 1. Short MXNJPY at mrkt as soon as the news is heard, perhaps 50% TP at 5.00 and 50% hold for a few days/ weeks. 2. Long USDJPY at market as soon as the news is heard, targeting 108,109,111.
Short
by QuantumLogicTrading
USD PRESIDENTIAL ELECTION - SELL MXNJPY - RISK & SENSITIVITYPresidential Election - Trump wins - MXN more sensitive than USD, Yen to pick up the risk-off shift: 1. Positioning for a trump win is much more interesting than a hilary win but nonetheless both should be profitable at some level. My number 1 position will be SHORT MXNJPY for a number of reasons 1) MXN has been very sensitive to the USD election given trade claims made by trump which would likely have a greater than brexit effect on the Peso. This in mind however MXN has been rallying recently as Trump winning odds have filtered into more of a tail probability. Nonetheless this just opens up great opp for profit in the even he does win (e.g. MXNJPY has rallied from 5 to 5.5 in the past few weeks as trump winning is being discounted, this opens up a whole 500pips of reward in the event he does win and MXN is shorted due to its sensitivity). - Further the reason i have chosen XXXJPY rather than XXXUSD as a denominator for the MXN short is because JPY is likely to rally as risk sentiment sours given trump is likely to create great global geopolitical tensions, thus risk-off demand is likely to trade through the roof. Not to mention being long USD vs MXN also will have muted gains given USD is also likely to be a political-economic victim of trump win volatility. - Term structure for the MXNJPY shorts imo will play much like GBPXXX downside has, the Trump uncertainty is likely to weigh on both the USD and MXN until at least the end of the year given policy intervention/ settling in will take this time. Thus i will be running this position for several weeks after election (i dont think we will see anyone buying the dip this side of 2017. Presidential Election - HIlary wins - Long MXNJPY possible but USDJPY bids perhaps makes better sense: 1. The inverse of the above is obviously to buy MXNJPY in the event of a Hilary win. HIlary imo is the neutral decision given her lust to be in the pockets of corporations. MXNJPY bids make equal sense however i think USDJPY will be better suited since MXNJPY forgo's the added topside USDJPY will gain through the FOMCs likely Dec hike plus MXNJPY has already rallied 10% in recent months into the election so calls for futher topside will likely be limited. USD on the other hand has remain relatively neutral in terms of Presidential flows. Yen will devalue in both cases as risk-off demand is flushed out. Trading Strategy - Trump SHORT MXNJPY, Hilary LONG USDJPY: 1. Short MXNJPY at mrkt as soon as the news is heard, perhaps 50% TP at 5.00 and 50% hold for a few days/ weeks. 2. Long USDJPY at market as soon as the news is heard, targeting 108,109,111.
Short
by QuantumLogicTrading