Henry, Thread, the article is certainly thought provoking, but the move in the yen was a combination of things:
My theory is as follows:
1. After Russian default, major specs got collateral calls and liquidated some short yen positions. This drove the yen down to around 135.
2. The U.S. bond market rallied & rates were cut, weakening the dollar. This pushed the yen down to 130.
3. Most medium-to-small currency traders had their stops placed between 125 & 130, which would be right at or below the long term trendline (a common practice).
4. One stop after another was triggered when traders panicked as the opposition parties seemed to change to a more amiable position early this week, which caused some short-term, semi-warranted yen strength.
5. This resulted Wednesday in increased margin calls for specs, resulting in the selling of U.S. Treasuries by 2 major funds to meet the calls. As the dollar weakened, the yen bears got increasingly nervous and took profits on long-term positions, while some currency traders now hopped on what seems to be a new short-term trend to scalp a quick profit, all exacerbating the dollar's fall.
6. Now here's where the afr.com.au article comes in:
You have all these nations visiting Washington and bitching about how strong the dollar is. They pressure Rubin & AG to correct it somehow. Someone stands up and suggest that they should use this yen stength to squeeze out all major shorts, as they are afraid the yen strength may be too temporary. Rubin & AG agree and sell dollars vs. the yen, sending it as low as 111. #6 is just my theory, but 1 - 5 are pretty much unargueable. If it does come out that afr.com.au's alegations are true, then Rubin would lose a lot of respect for reiterating yesterday the same old US dollar policy (lying to the financial community).
7. As for the Mark & Pound, it is simply a fact that a spec not
wanting to liquidate the long-term yen trade will hedge against the dollar's weakness by buying the mark or pound vs. the dollar, which basically offsets the yen trade's new lossses until the waters calm and the spec rethinks the positions.
P.S. good call on the technical correction in bonds earlier in the week. |
