Speculators face bear trap as long yen positions surge
Tuesday, January 28, 2003
markets.scmp.com
REUTERS in Chicago
Speculators of IMM yen futures extended an already monstrous net long position from January 15 to last Tuesday, according to the latest market data.
The condition underscored the potential for a yen decline from five-month highs reached last week. But analysts cautioned that an inflated speculative position was only a small piece of a much larger puzzle and that the fundamental factors that had been weighing on the US dollar/yen in recent months were still in place.
The Commodity Futures Trading Commission's Commitments of Traders (CFTC) data on speculative positioning is used by many analysts as a reverse indicator of future market direction. For example, extreme net long speculative positions often presage a decline in the currency, especially if that position conflicts with those held by the more influential commercial players.
Speculators generally comprise trend followers seeking to pick a precise top or bottom in the market.
The CFTC data revealed a net long yen position of 33,293 contracts, up from 32,944 contracts in the previous week.
David Mozina, a director of global foreign exchange at Bank of America, said: "You have to put everything into context and that is that the dollar is under pressure from every angle.
"But the speculative market is very bearish on the dollar. This does make me a little concerned about recent moves and how much more it can continue."
The last time the net long yen position was so large was in November 1999. At that time the dollar was trading near 102 yen. About a month later, the dollar mounted a two-month upward trend that took the currency to nearly 111 yen.
The dollar has been on the ropes against leading currencies, falling to a three-year low to the euro on Friday, and a five-month low of 117.37 yen on January 17. The dollar has hovered just above this level against the yen in the past week, while falling against the euro.
Some yen traders believe the Japanese government may step in to sell the yen lower if its growing strength takes a toll on the country's export market. An extremely large net long position by yen speculators could give Japan the ammunition it needs to knock down the net position through market intervention.
On Friday, Bank of Japan governor Masaru Hayami said the central bank would monitor closely the impact of foreign exchange moves on the Japanese economy.
"Now, the positions appear to be getting extended on the speculative side, people betting on the stronger yen," Mr Mozina said of the large speculative position.
"Maybe if the Bank of Japan officials are thinking about intervening, you've got a classic bear trap for these players to get squashed." |
