Wednesday, January 31, 2007

The Yen and Paulson

Today Treasury Secretary Paulson came out and said that he was watching the Yen "Very Closely". This scared the markets (and all carry trades) and sent the Yen up against most major currency pairs. I think that the direction of the Yen is of critical importance. A great deal of the carry trades hinge on a weakening (or Steady) Yen. If the markets (i.e. Fed, ECB etc)deciede that it is not in their best interest's then the Yen will strengthen (Intervention??)and carry trades will be carried out the door. For now I think we are still in a wait and see situation. Currently it is the European community that is most upset with the strong Yen. Yesterday the German Finance mininster was saying that Eur/Jpy would be discussed at the G7.
I do not see intervention as an option, I could see "jaw boning" in an attempt to get the Yen stronger, but then again I do not see it doing alot. A look at today's comments from the Fed makes it clear to me that for the forseeable future (as long as the numbers do not deviate much from current level's) rates are on hold. Yes, they did maintain their tightening bias, but that is to be expected based on the recent numbers. I have actually reentered the waters. I put on some Forward/Forward Mexican rates positions (positive carry), Sold 12 month Usd/Ars at 3.1725 and went short some Usd/Brl at 2.1330 (March BMF).I am still short some Brazilian Forwards.

I am convinced,after reading a comment from a reader, that I have been looking at the markets from to short of a time perspective. So I will attempt to change that (a little P and less L would help my staying power).

THese are the FX Trading Position's for today.

Good Luck and Good Forex Trading


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