There was a drop in the Yen yesterday which was a potential signal that we were nearing a point of capitulation by those betting against this upward trend in risk assets.
The logic is of this scenario is tied to the common use of borrowed yen to create more leverage in the hedge fund community. As I understand it, Yen is the standard source of that leverage because Japan’s monetary policy is the least in danger of being tightened by surprise at any given time. This is due to their structural deflationary forces in the Japanese economy. Thus, borrowed yen are least likely to cause a spike in cost-of-carry for positions they fund.
Over the years, I’ve seen multiple instances of a persistent and steady "hated" rally in stocks and other risk assets finally giving way to some corrective action just after a sharp drop in the yen. My opinion tisthe correlation here is a "give up" by those fighting that trend. That’s sort of like a cross-asset version of a final intense "puke" in a long trending move.
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