Traders Turn Positive on US dollar for First Time This Year
Source: Bloomberg
Yen at a critical juncture intervention looms
The Japanese Yen is once again near 160 USD/JPY, the level that triggered massive government interventions in 2024, with trillions of yen spent to defend the currency. Top official Atsushi Mimura warns that “all possible measures” could be taken. Rising oil dependence and record gas prices are straining the economy, making a weak yen more than a market issue it threatens daily life and inflation. History shows that a break above 160 would likely trigger swift intervention. Source: Global Markets Investor, Bloomberg
The euro has sold off aggressively in the wake of the Iran war.
We briefly bounced at the range lows, but the move has been weak and lacks follow-through. Now sitting well below the 200-day moving average, with the 21-day crossing lower, a bearish shift in trend dynamics. Last time this setup played out, the euro didn’t stabilize, it continued the move lower. Source: The Market Ear, LSEG
Dollar and the oil crisis
Last time it caught strong bids and squeezed for some 6 months. A similar move would tighten financial conditions quickly. Source. TS Lombard, TME
U.S. Dollar Index $DXY now trading above its 200-day moving average by the largest margin in 12 months 🇺🇸💵📈
Source: Barchart
The dollar index $DXY is now flirting with the downtrend line that has been in place since early 2025 (chart on the left).
It is breaking above the 200-day moving average. A close slightly higher from here, and we could be staring at a proper dollar squeeze. Meanwhile, the EUR has tracked EU gas almost perfectly, and the gap now is massive. The chart on the right shows EUR versus EU gas (inverted). That gap is huge. Source: The Market Ear, LSEG
What is the size of the yen carry trade?
There are various types and forms of the yen carry trade. This table from our comprehensive report on this topic shows that its size is substantial. Using conservative estimates, I would put it at $1 trillion.
A carry trade unwinding time bomb? Watching the JPY appreciating is nice but note the strong correlation between the JPY and the VIX
Source: TME
