Originally Posted byÂ tradpatAn interesting comment on YEN intervention…
Junk article. Let me lay out the real potential variables to consider for both possible outcomes that actually have a chance to generate order flow.
Yen Intervention will hold/successful
Variables to consider:
1. How many billions they are willing to commit to the intervention
2. The skill of the traders in the Ministry of Finance conducting the intervention and their knowledge of order flow and market sentiment and how to work the orders. (Probably low)
3. The pain tolerance should intervention result in paper losses of a few hundred pips on 10+ yards positions(Probably will grow), due to inadequate skill of those conducting the intervention and unfavorable market sentiment.
4. If the equity market rally and thus risk assets rally continues. If it does and people believe U.S. economic growth is going to accelerate and the FED signals an end to Quantitative Easing, and potential for interest rates to rise, then the carry trade could start to come back and people start buying USD/JPY. So if stocks keep rising it should help to support USD/JPY.
5. If the U.S or Europe join in with Japan to intervene.
6. How much short covering is left to take place.
Yen Intervention will fail
Variables to consider:
1. If Japan only intervenes in these 1 day actions and then decides to sit out a few weeks.
2. If the pain of the losses gets too deep for them and they are forced to withdraw from their intervention(Similar to Swiss National Bank situation)
3. If U.S/Europe voice serious concern over Japan’s unilateral intervention, thus curtailing the voracity of the intervention.
4. If Global growth situation deteriorates further resulting in equity markets falling sharply, FED institutes Quantitative Easing Part 2, risk aversion grips the markets. If this happens the amount of Macro sellers coming in to sell USD/JPY will get really HUGE.
5. The equity market rallied 5% from Aug 31 until this week. Prior to the intervention yesterday USD/JPY actually was stuck in a range/went down, instead of the usual going up a bit with the equity markets. This could potentially be an ominous sign.
Which way is it going to go? I don’t know but I will be watching the above variables/factors closely.