Forex Blog: Currency Trading News & Analysis.

March 28th 2007

Carry Trade Under Pressure

The Yen is rising once again, as another set of investors unwind their carry trade positions. No, it wasn’t the threat of higher borrowing costs, via a hike in Japanese interest rates, that spooked investors. Rather, it was general volatility in forex markets that jolted investors to re-assess their short positions in the Yen. Volatility is anathema to carry traders, as shorting a currency is similar to shorting a stock. Once any security that one has shorted begins to rise, short sellers are pressured to ‘buy to cover’ which only sends the currency higher and triggers further buying to cover. This phenomenon is known as a ‘short squeeze’ and seems to affect the Yen every time volatility surfaces. The Financial Times reports:

Analysts said the resulting rise in risk aversion had led investors to exit carry trades, in which the purchase of riskier high-yielding assets is funded by selling low-yielding currencies such as the yen.

 

Read More: Investors exit from carry trades

SocialTwist Tell-a-Friend
Posted by Adam Kritzer | in Investing & Trading, Japanese Yen | No Comments »

Sponsored Offers

FREE Daily Email Updates

Enter your email address:

Delivered by FeedBurner

Have Questions? Want to Share Your Review?

Be heard. Please share your reviews today!

Neighboring Posts

© 2004 - 2018 Forex Blog.org. Currency charts © their sources. While we aim to analyze and try to forceast the forex markets, none of what we publish should be taken as personalized investment advice. Forex exchange rates depend on many factors like monetary policy, currency inflation, and geo-political risks that may not be forseen. Forex trading & investing involves a significant risk of loss.