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John Thomas graduated with a bachelor’s degree in biochemistry with honors and a minor in mathematics from the University of California at Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was employed by a medium-sized Japanese securities house. Thomas became fluent in Japanese... More
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  • the Euro/yen cross is a Great Leading Indicator 0 comments
    Jun 25, 2009 9:31 AM

    I warned readers that pain was on the way eight days ago (see http://www.madhedgefundtrader.com/June_16__2009.html), and one of the big reasons was a major reversal in the euro/yen cross rate, a great barometer of global risk taking by hedge funds. After trading as high as ¥170 in 2007, it plummeted to a low of ¥114 earlier this year. It then took off like a scalded chip three weeks before the S&P 500 made its prophetic 666 low on March 9. Look at the charts for the euro/yen and the SPX and you’ll see the correlation has been huge. This is a valuable and highly predictive cross rate to track, because the big boys can finance positions for free by borrowing in yen and investing in other high yielding, commodity producing currencies, like the Australian, New Zealand, and Canadian dollars. After a spike up to ¥141 on June 8, euro/yen reversed all the way back to ¥132 warning that a tempestuous round of deleveraging and risk reduction was on the way. For mere mortals, this translates into selling of everything across the board and is why trades as diverse as copper, crude, stocks, and BRICS have suffered vicious sell offs.  Watch the euro/yen cross as a wizened old sailor keeps a weather eye on his barometer.
     

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