You may not have noticed the yen event brewing, but it is important from many perspectives. The yen has been appreciating in recent days, while the USD/JPY has been falling. The Bank of Japan has intervened, but there is more to it than that. I will explain and give trading advice below.
The target for long yen within a week is 154, which now looks like it will be reached in a day or two, at which time the target will be reassessed. So what is happening now? Partly it is because of the Bank of Japan, which has been intervening and thus pushing up the yen, but this is more about the carry trade. I have said in previous articles that the yen carry trade is one of the largest trades in the world, and now this trade is a bit confused. Traders consider that the Bank of Japan may intervene, which is not only a possibility but a reality, and there is also the risk of the US election approaching, with Trump becoming the biggest favorite, and his policies are potentially bearish for US bonds. The carry trade refers to traders borrowing money in Japan at low interest rates and then investing in high-yield markets such as US bonds. Now it seems that Trump's coming to power in a few months may cause US bonds to fall sharply. Traders naturally want to close their positions, and many people are doing this trade. No one wants to be the last to close their positions, so it is easy to understand that some funds and institutions have already closed their positions. I expect this to continue, so the appreciation of the yen is not necessarily short-term, but may last longer. So we should be long yen, and I will reassess after reaching the target, and maybe hold the position for longer, but in any case this will evolve into a bigger event in the coming weeks and months.
Finally, as usual, let’s take a look at the top gainer on yesterday’s list $STMX
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