Tuesday 31 January 2012

Painful day for Yen Shorts yesterday! We averaged down to 76.6

For those following our latest trade, they will notice that (much to our dismay) the Yen strengthened violently just as we bought our first clip of USDJPY on continued month-end support from exporters frantically buying Yen at (or around) the crucial 77 mark.
 
Indeed, the pair traded down to 76.19 by our reckoning and we have added to our position, averaging 76.6. It doesn't take a genius to figure out we are in the red (and our AUDJPY trade to a lesser extent). If we were to be shaken from the market now, it would translate to a 0.6% P&L hit and take our YTD to -0.32%.
 
Every problem has a solution
  • Closed half of the USDJPY position at 76.3, respecting that we mis-timed our entry and fundamental weakness of JPY may be a while off.
  • We look to add to our USDJPY position into 76 and below, basing the entire trade on the optionality of BoJ intervention.
  • In this way, we form a "campaign trade" with a maximum tolerance of further 1% loss (equivalent to a ~74 USDJPY) noting that there would be considerable corporate unrest in Japan should this risk materialise.
STOP PRESS:  Japan's Finance Minister Mr Azumi warns that firm steps will be taken against excessive, speculative FX moves. USDJPY currently at 76.22.
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