hedgeman

Forex Wrapup: Dollar Benefits As Traders Focus on Weak Economies Elsewhere

We have to diferentiate between "focus" and forced liquidation of positions due to eroding capital. Next to move? Should be EURJPY.

EURJPY is standing on critical support levels, bellow 162.00 it will start to brake USDJPY advance and should provide a temporary relief for the USD bears. Since EURJPY was a long commodity proxy for the past few years it should revisit sub 150 in the first round. Since EURJPY is in a distribution phase for weeks now this commodity corelation seems to be broken however it will return. The move will most probably be very fast after 162 gives way on daily closing basis. This very popular carry trade is the last to brake and since capital is severely depleted by fast moves on other fronts the liquidity will be very poor and will exacerbate the move. If USDJPY brakes above 110.80 on daily closing basis the downmove of EURJPY could stall (for a short while only). Levels to watch are 165.10, 164.45 and 162.00-50 area (here defense is expected).

Long commodity, short equity, short USD and carry trades strategies unwounding on an overcrowded illiquid summer market. Fundamentals have limited impact at present.