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The stock market is closed tomorrow in observance of Martin Luther King, Jr. Day. However, currencies of course are trading tonight. So, I thought I would take a look at the recent weakness in the Japanese Yen. The Yen is often inversely correlated to global risk appetite, in no small part due to the “carry trade,” which essentially encourages arbitrage by borrowing Yen to speculate on other asset classes. Part of what caused such a disconnect in global markets during the 2007-2009 bear, and even at various points since then such as the Flash Crash in 2010, was the rapid unwinding of the Yen carry trade, leaving highly levered large market players trapped in suddenly huge losses.
We know global markets have surged of late. Even during the correction in the U.S. last autumn, China and Japan were exuding relative strength, among other foreign markets. The accompanying weakness in the Yen, especially versus a currency with a direct correlation to risk such as the Euro, solidified the move.
Looking at the monthly chart of the Euro/Yen cross below, we can see a bullish falling wedge (purple lines) breakout for the Euro. 105 certainly needs to hold on any pullback for the bull thesis to prove true. But I expect 110 to become a new floor as the Yen is suddenly the new weakling.
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Hello, But what if BOJ stop easing? Thank you, please.