Yen Up on another China Credit Default Risk

It was just a few days ago that the market was knee jerking higher on $255bn CNY in PBoC liquidity injections with the majority in 21-day repos (over 7-day). As the market knee jerked higher, we asked the question, "What is so wrong in China right now that they needed to inject so much money into the system after watching them carefully inject and withdraw from week to week, tweaking their liquidity.

That was the main event, not the injection, the question as to why. 

Yesterday we found out that their already nearly frozen interbank system was expecting a trust default (still is) within a week. Today or overnight rather, banks are told to watch over the credit of coal miners as they expect defaults on their credit. China knew there was a problem alright, now that we are hearing about the reason $255 bn CNY were injected Tuesday, it's not such a knee slapping party anymore.

 Tuesday's "Chase it higher" has not ended well with this morning's move taking out nearly the last 6 days of IWM longs.

 And the Yen keep roaring.

Remember about December 27th as window dressing ended, the market hasn't been the same since.

The 30 min Yen chart has been positive through all of 2014 and now we have an even stronger USD/JPY downtrend, approaching the BOJ's Maginot line of $100.

ES is in line on the downside, it got ugly last night

The USD/JPY did it, another new low in the 2014 downtrend, the first since ...well before Nov. of 2012 when the carry pairs were activated.

Here's the USD/JPY that has ,made a new lower low, just yesterday we weren't even close to making such a low, but expected it. In fact this was yesterday's chart....

This was just yesterday with the comment...."The USD/JPY since the start of the year in a downtrend which WAS NOT BROKEN ABOVE $104.91, means this break of $104 today is likely going to see some volatility, but the end result should be the next lower low."

Well there it is. This is a big part of the reason I said, "The market isn't going to send up a flare and tell you when it has topped", but in other p;laces like the Carry crosses 2014 downtrend, we can see we are coming down the right side of the mountain and...

Now it should be clear to see why we've been watching China so carefully. Anyone who thinks Credit Defaults in China won't cause contagion clearly don't remember 2008 in the US very well.