The Currency Part...

So there's still a possible gain to come, that has been based on the HYG / HY Corp Credit 3C positive signal, perhaps there's even an entry today for another short term trade, but the idea was that the currency carry pairs would start to fall apart and when you have that much leverage and position size, you are even faster on the trigger than you are with options.

HYG 15 min 3C is positive as is the long term TSV 55, we also have a rounding-type bottom, so there's a possibility for a trade to the upside as mentioned last night.

Here's the good part though (these charts were captured just before the open).

The ECB came out before this week's rate decision and said they weren't in the game of playing with currency values, but when you say that before the rate decision, it's kind of like trying to inoculate yourself from something you're about ready to be criticized for so with France screaming about the rise in the Euro and Germany (who has no need to scream, they simply have the Bubba-bank pick up the phone and call Draghi directly) on the verge of a recession, I thought the most logical outcome was a rate cut that sent the Euro down, screwing up the Carry Trade basket and forcing the Carry to close, which means equity longs have to be closed to close the carry.

I was wrong (about the rate cut), the ECB didn't cut rates, but the inoculation the day before was for good reason, Draghi had so much smack to talk about the EU, you wondered why he didn't cut rates, but he did manage to talk the Euro down, or tat least to start that process and now it's going to start hitting carry traders (Hedge funds) in the pocket as each pip can be worth up to 100-200 pips in leverage, a profitable trade can turn in to a loss real quick.

This morning out of Japan come complaints the Yen is falling too fast, this is nearly perfect. The gut feeling I've had about a really fast reversal to the downside could certainly be the product of a mass carry unwind.

 You may recall the triangle from the EUR/USD in green and the break above it, now we are VERY near crossing below the apex of said triangle which makes this breakout a head fake move and possible is setting up a huge downside reversal in the pair, which translates to "Stocks Down".

The first red box is pre-ECB nervousness, probably some early carry unwinds, the second red box is Draghi jawboning the Euro lower during a press conference after the decision to leave rates exactly the same.

 Here's the start of trade for FX and the pair this week, at "A" is Draghi doing what the ECB said the day before they would not do.

 The EUR/JPY pair was talked about last week and on Sunday night in the "Week Ahead" post, I was looking for a Carry Unwind back then, at that point the best I had to point to was a bearish ascending triangle in the pair (I'd ignore this in equities, but is currencies they tend to be real).

Other than the wedging in the pair, we still had an uptrend, this week that started to change as we have a lateral (H&S-looking) price consolidation and perhaps top.


 Since trade started this week for the pair... It looks like we are just breaking below the consolidation.


 In the USD/JPY we also had an uptrend and an ascending wedge I pointed out, but that was as bad as it got until this week as we started another lateral consolidation that is just shy of failing to make a higher low.

 This week in the USD/JPY...

The actual currencies...

 The Euro seeing some initial downside, I do think this could quickly escalate in to a full blown unwind.


 Meanwhile, the dollar is making multi-day/multi-month new highs.

 The Yen that has been so beneficial to the carry trade and the market move (note where downside momentum picked up and where the new Nov. 16th Cycle started-that's not the only reason, but it's not coincidence, the accumulation of stocks in to that low came from money that was brought over from a carry operation).

Meanwhile this week I have been mentioning the flat zone in the Yen and how it "might" be a pivot point, today is the first day that really would hurt the carry profits.

So I was looking for some quick upside that can't last based on High Yield Credit alone and I've been looking for the downside reversal to be swift, all of the sudden changes in the carry currency pairs fall in to our lap this week, the timing for the  two is nearly perfect.