U.S. Dollar 15-Year Trendline It's Now or Never
Source: Barchart
For decades, the Japanese yen has been the funding currency of choice for global carry trades.
But as volatility in Japan rises and the Bank of Japan gradually moves away from ultra-low interest rates, investors are increasingly looking for alternatives. One currency is emerging as a natural candidate: the Swiss franc. The logic is straightforward. Swiss interest rates remain close to zero, making the franc one of the cheapest major currencies in the world to borrow. At the same time, the Swiss National Bank remains attentive to excessive currency appreciation, reducing—at least in investors’ eyes—the risk of a sharp and uncontrolled strengthening of the franc. Positioning data suggests traders are taking notice. Hedge funds have pushed net short positions in the Swiss franc close to a two-month high, while speculative short positions in the yen have declined for a second consecutive week. The performance differential is already becoming visible. Over the past month, a carry trade funded in Swiss francs and invested in the Mexican peso would have generated a return of roughly 4%, compared with around 1.3% for the same trade funded in Japanese yen. The yen is unlikely to lose its status as the world’s dominant funding currency anytime soon. But the backdrop has changed. Expectations of higher Japanese interest rates, combined with the persistent risk of currency intervention, have made yen-funded carry trades less predictable. By contrast, Switzerland combines extremely low borrowing costs with relatively low interest-rate volatility. That is putting the franc firmly back on traders’ radar. There is, of course, a striking irony in all of this: one of the world’s ultimate safe-haven currencies is increasingly being borrowed to finance risk-taking elsewhere. The Swiss franc may still be a refuge when markets panic—but in calmer times, it is increasingly becoming the fuel behind the carry trade. Source: Bloomberg
Speculators are now the most long on the U.S. Dollar in more than a decade
Source: Barchart
Bessent’s selling of EUR to buy JPY, and US threats to weaponize USD stablecoins against the EU may be triggering some unforeseen blowback.
Source: FT, Luke Gromen
US intervention has failed this time
USD/JPY is now back to the same level where the US intervened to strengthen the yen. Also, USD/JPY rallied almost 0.9% yesterday, its biggest daily gain in 5 months. At this pace, we might see USD/JPY above 164 in a few weeks again. Source: The Macro Paper
Japanese yen weakened past 158 per dollar.
Japan’s current account unexpectedly swung to a ¥923B deficit in June, its first since January 2025, versus expectations for a ¥1.512T surplus. Yen is currently the weakest G-10 currency in August as the effect of the joint US-Japan intervention fades. Bank of Japan also flagged rising inflation risks in its July summary of opinions, with one board member saying rate hikes could come faster. Source: Bull Theory
$8.3 Trillion is now sitting in money market funds, an all-time high
Source: Barchart
TRADERS ARE BETTING AGAINST THE YEN AT THE SECOND HIGHEST LEVEL EVER RECORDED
And this is happening just days after Japan and the US spent an estimated $88 billion trying to stop the yen from falling. Combined net short positions from asset managers and leveraged funds hit -205,000 contracts as of July 28, just short of the 2024 record. Hedge funds alone are the most bearish since 2007. The intervention happened, and traders went right back to shorting. Source: Bloomberg, Bull Theory
