Carry Trade Pairs as leading/lagging indicator for the indices

V

virtualmoney

Or is is the other way round after 12noon i.e. market leads the
carry trades pairs? What about other times, which is leading or lagging?

Which carry trade pair would you choose to trade or follow in advanced?
 
Quote from virtualmoney:

Or is is the other way round after 12noon i.e. market leads the
carry trades pairs? What about other times, which is leading or lagging?

Which carry trade pair would you choose to trade or follow in advanced?
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It is suggested that the USD-JPY is related to US stock market indices due to intense carry trade.

When the yen is about to rise (relative to the USD) hedge funds liquidate their stockmarket positions and with the resulting dollars THEN they purchase Yens to avoid losing money.

So it would be logical that the US stock market leads the USDJPY.

Be aware that hedge funds may be either long or short in the US stock market, so liquidation in may mean either selling to close long positions, or buying to cover short positions.
 
take a look at Aussie or Kiwi vs. USD. They both tend to track the US equities markets since they are commodity producing/exporting nations. I have found since late last year that right now they tend to be the best pairs to trade if you are trading the strength of the S&P or Dow.
 
Quote from crgarcia:

It is suggested that the USD-JPY is related to US stock market indices due to intense carry trade.

When the yen is about to rise (relative to the USD) hedge funds liquidate their stockmarket positions and with the resulting dollars THEN they purchase Yens to avoid losing money.

So it would be logical that the US stock market leads the USDJPY.

Be aware that hedge funds may be either long or short in the US stock market, so liquidation in may mean either selling to close long positions, or buying to cover short positions.
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The observation about the correlation of yen to equity markets is correct, but the above reasoning/explanation is flawed.
 
Quote from crgarcia:

It is suggested that the USD-JPY is related to US stock market indices due to intense carry trade.

When the yen is about to rise (relative to the USD) hedge funds liquidate their stockmarket positions and with the resulting dollars THEN they purchase Yens to avoid losing money.

So it would be logical that the US stock market leads the USDJPY.

Be aware that hedge funds may be either long or short in the US stock market, so liquidation in may mean either selling to close long positions, or buying to cover short positions.
More...

Your explanation of who leads is inconsistent. That is one of the flaws in your assumptions/reasoning. Who then leads: the stock market or the yen, if there is a leader in the first place?
 
Quote from crgarcia:

A picture is worth a million words,
judge by yourself:

USDJPY vs S&P 500:
http://finance.yahoo.com/q/bc?s=USDJPY=X&t=5y&l=on&z=l&q=l&c=^GSPC

JPYUSD (inverse of the above) vs S&P 500:
http://finance.yahoo.com/q/bc?s=JPYUSD=X&t=5y&l=on&z=l&q=l&c=^GSPC
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What you posted explains correlation. As I wrote above, that is correct. It is rather your explanation of the phenomenon that is flawed.

Do you understand the difference between causality and correlation? If there is causality, there is correlation. But correlation does not always lead to causality.

In addition, correlation can be explained without causality.

So it is your explantions related to the correlation that are flawed, but the correlation is there as indicated in all above posts.
 
Quote from virtualmoney:

What happened today? Yen, indices & carry trades non-usd/jpy
all went up. Any comments?

:confused:
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There is never a PERFECT correlation.
 
Ooops...

http://finance.yahoo.com/q/bc?s=EURUSD=X&t=5y&l=on&z=l&q=l&c=^GSPC

http://finance.yahoo.com/q/bc?s=EURJPY=X&t=5y&l=on&z=l&q=l&c=^GSPC

I guess approx. half of the S&P's performance is due to the ever weakening dollar, that is weakening with the yen. So why would a hedge fund in general invest in yen (very low interest), when they can buy euro and not lose a lot on interest (nowadays they actually gain interest). Can it be that the euro is a main beneficiary of the chronic USD weakness? Hmm...
 
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