Whipsaw Markets: The Day in Two Charts

We can talk about the carry trade all we want, but this picture does a pretty good job explaining the relationship. 

Yen vs S&P 500 Futures

Yen vs S&P 500 Futures

The relationship flows in several directions:

  • An increase in the value of the yen puts pressure on the carry trade, moving the stock market downward as traders unwind positions
  • A decrease in the value of the stock market puts upward pressure on the value of the Yen for the same reason
  • An increase in the value of the stock market makes it more appealing to speculate via carry trade, putting upward pressure on the dollar as traders finance positions with cheaper Yen
  • A decrease in the value of the Yen makes profits for the carry trade, putting upward pressure the value of the stock market.

SPY

Categories: Markets

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