USD risks for the coming week.

Paulson visiting China, the chinese might give Paulson a gift to bring back, a welcoming gift secondary to his ties with them.

G7 meeting, BOJ under pressure to let yen appreciate. As voiced by some german politicos.

These two key factors might bring as to 115 usd.jpy. Since euro carry trades corrected, risk is that the USD/JPY carry trade corrects too.


Chris

1) usd.jpy carry trade correction correlating with euro.gbp/jpy carry trade correction.

2) usd bond selloff

3) equity selloff



progressive in nature. Post g7 things can get back to normal.

when i say usd risks, i mean relative to the yen. The usd euro crosses broke out of range and will continue the slide.

Spectre- Would you elaborate on the "carry trade" for me? Also, Do you only trade and focus on the usd/jpy pair?
Thanks

Chinese options

1) Widen currency band.

2) Sell dollars aggressively.

Yuan has appreciated only 2.1 in July 2005, and since then it appreciated only 1.87 percent.

There is a rumor out of China that it will widen the bands. On July 5th 2005, and proceeding days, usd.jpy fell by 350 pips, testing 109-110. Then a huge move up occurred from 110-->121.00. It seems we could see the same to 115 and then move up to 120 post G7.

Carry trade is basically borrowing cheaply (ie yen) and then using that money to seek higher returns in other currencies or markets like oil or gold or even bonds.

Borrowing money cheap and using it to speculate.

I know that, due to the low JPY interest rate, the yen crosses have been some of the most popular with the carry trade, particularly GBP/JPY. In the past months the yen crosses had been going up, which supports the carry trade, but now have been going down, which probably reflects both the stremgth of the yen and the weakness of the pound sterling and the euro.

My question is whether, given the state of the Japanese economy relative to other countries, whether the yen crosses had gotten too high? If that is the case, why would USD/JPY go up to 120? I know that the USD looks strong at present, but is it that much stronger than the yen? Of course, for the carry trade, that would be excellent.

Whats a good way for China to sell dollars and have a yuan proxy ?


Yen

They will be buying yen at relatively low levels versus all pairs. Destroying carry trade holders, hedgies and fund managers forcing them to liquidate.

Japanese economic data fudged to represent strength underlying its market. They are basically talking up their own market to fulfill expectations.

Now is Yen benefitting from its neighbor China with another booming economy. Maybe.

Japan is a exporting country, similar to China. They rely on the world for consumption and transfer of wealth. The USA has been a great consumer of Chinese goods, and Japanese too. But more home equity loans wont finance further consumption in the future, since equity trends seem to be decreasing nationally in this country.

The bond market is signaling a slowing. If the us market is slowing, what does that portend for the rest of the world. Will the rest of the world pickup slack for US consumption?. Will oil revenue in Russia, promote more consumption or funneling into swiss accounts by their elite?. To further stimulate its economy yet keep the world thinking its on a upward slope. The BOJ needs a cheap yen overall over the longer term, to promote exports abroad. This is a bone of contention now. They are basically dumping cheap Japanese goods on world markets. One way for China to fight this is to buy yen across the board killing two birds with one stone.

1) Yen appreciation, to make Japanese goods more expensive so they dont compete with Chinese goods.

2) Yuan appreciation, helping Paulson with the politicians back home here.

Hey dont forget either, analysis is a trap. Just trade the price irrespective of analysis.

Dont fall into the analysis trap.

Agreed. I do trade price, but I like to pretend that forex is sane, even if a lot of the time it is not. Thus I like to understand, if I can (and I often cannot).

If the yuan benefits from more expensive japanese goods, which clearly it must since they are competing for the same market in many cases, then it would benefit China for the yen pairs to drop like a rock. That is why I do not see a rationale for USD/JPY to be going up to 120. Would that not decrease the US prices of Japanese goods and thus decrease the Chinese share of the market? Of course, the fact that it would make sense for the yen pairs to fall is not necessarily going to have any bearing on what actually happens to the prices. Foolish me, I just keep trying to make sense of what happens!

Its basically economic warfare between China and Japan. Sometimes China uses North Korea to create instability for Japan. Pretty much everything that happens in NK is dictated by China.

Now the Chinese might be looking at the relative cheap Yen, and thinking to themselves, look at all the market share we lost abroad. What are some ways of making it tougher and compete better against Japanese goods. We can sell USD/JPY. And thus create premiums on Japanese products.

I think we might see some volatility as the USD/JPY challenges higher ground.