Dichotomy between market pricing and reality

[M.W.]

I get the impression that the market does not price in any of the risk of further escalation in the Ukraine conflict. Oil is at 114 as we speak yet the dollar sold off sharply post fomc and the Japanese yen completely crashed. It's full fledged risk on in this precarious environment. And I am not even talking about equity markets which is another story.

Surely, commodities and agricultural are flying and that provides a lift for the Australian dollar and Canadian dollar but the yen is way underpriced imo. In normal times this makes sense given the low interest rate policy BOJ is driving relative to other central banks. Also the FED disappointed somewhat and bowed to geopolitics and equity pressure. But I still cannot help but feel that risk is way underpriced at the moment.

Thoughts?

 

[2rosy]

any data, hard numbers behind this opinion? in your reality what should market prices be?

 

[The_Krakenite]

I get the impression that the market does not price in any of the risk of further escalation in the Ukraine conflict.

Stocks are still crazily over-valued, but that's because interest rates are still so insanely low. Give it some time... lots of hikes coming this year and some may be big ones.

 

[M.W.]

The orange graph denotes the Japanese Yen basket, red the USD basket. The yen broke has been relentlessly sold since around March 9. The green lines denote the commodity currencies CAD, AUD, and NZD which is no surprise they are heavily bid. Full fledged risk on which stands in stark contrast to the current invasion and unrest.

any data, hard numbers behind this opinion? in your reality what should market prices be?

 

[SunTrader]

The orange graph denotes the Japanese Yen basket, red the USD basket. The yen broke has been relentlessly sold since around March 9. The green lines denote the commodity currencies CAD, AUD, and NZD which is no surprise they are heavily bid. Full fledged risk on which stands in stark contrast to the current invasion and unrest.

Commodities are the new Gold.

Ergo JPY is a sell, sell, sell. Well maybe that "horse left the barn already."

But equities, bonds, nah not at all ... it is all about wheat and oil and .... and ....

 

[2rosy]

The orange graph denotes the Japanese Yen basket, red the USD basket. The yen broke has been relentlessly sold since around March 9. The green lines denote the commodity currencies CAD, AUD, and NZD which is no surprise they are heavily bid. Full fledged risk on which stands in stark contrast to the current invasion and unrest.


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Not sure what you are implying. What market do you think is mispriced and in what base currency?

 

[M.W.]

I thought I was pretty explicit. I believe the Japanese yen should be more in demand and trading at much stronger levels against its counter currencies. This is the largest divergence in over 20 years that I have personally witnessed that has built in an environment reflective of a serious military crisis, record commodity prices, and overall uncertainty where the economy is headed. There were times when the yen sold off heavily but for very specific monetary policy change reasons.

Not sure what you are implying. What market do you think is mispriced and in what base currency?

 

[nitrene]

What is the exact reason for the Yen collapse in the last 2 weeks? Is it Fed related or is the BOJ manipulating their currency again trying to pump their economy?

 

[SunTrader]

I thought I was pretty explicit. I believe the Japanese yen should be more in demand and trading at much stronger levels against its counter currencies. This is the largest divergence in over 20 years that I have personally witnessed that has built in an environment reflective of a serious military crisis, record commodity prices, and overall uncertainty where the economy is headed. There were times when the yen sold off heavily but for very specific monetary policy change reasons.

Sorry but you are sounding a bit like ARK's Cathy Woods tech undervaluation rationalizing.

USDJPY has been up 16 out of the last 17 trading days. Currencies as you know, or should, trend a lot more than most other asset classes. Not wise to try to outguess the market when a strong trend is underway.

 

[M.W.]

What are you talking about? I am not a technical trader. I trade currencies for fundamental reasons and the yen is fundamentally undervalued, heavily so. Does not mean I jump into a trade blindfolded against any of the current momentum. The entire point of the thread was to discuss the strong divergence between the current momentum and fundamentals.

Thank you for the valuable participation in stating the totally obvious.

Sorry but you are sounding a bit like ARK's Cathy Woods tech undervaluation rationalizing.

USDJPY has been up 16 out of the last 17 trading days. Currencies as you know, or should, trend a lot more than most other asset classes. Not wise to try to outguess the market when a strong trend is underway.