Carry is king again! That is, at least, what New York traders were thinking today. Today's session saw all the JPY crosses rally significantly from their overnight lows. There were a few reasons for the rallies in these crosses. The crosses failed to make new lows for the week in the overnight sessions. Then we had U.S. equity markets trade on the plus side for the day. These two factors spooked traders that were short these pairs. Profit taking, the final reason for the rally, entered the markets. The charge was lead by EURJPY and GBPJPY. EURJPY started the New York session just below the 161.00 area and rocketed up to the 163.25/30 area. GBPJPY started the New York morning near the 224.80 area and powered upwards to trade near the 228.35/40 area. It looked as if no one wanted to be short carry trades over the weekend and it is possible many people squared up their positions. This is due to the fact that there is a G20 meeting this weekend in South Africa.
We have heard reports this week that the G20 will be discussing currencies and recent F/X volatility. The rhetoric about "brutal moves" has stepped up. We have heard comments about F/X moves out from Canada, Japan, the ECB and the U.S. this week. Market participants may be getting jittery that intervention in the F/X markets might be on the horizon. Although we think intervention is unlikely at this moment, there will surely be comments out of this conference that will reverberate through the markets. Should the major central banks decide on concerted intervention, traders should watch out! The ride will be the wildest the markets have seen for some time.
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