Carry Trade Unwind

I was taking a quick look at the EUR/USD correlation with ES which has ben dominant recently, replacing USD/JPY which seemed like it was with us forever, but there was a time when just looking at EUR/USd you knew exactly where the market would be, it seems that has been on the table recently and may continue.

 ES (purple) vs EUR/USd intraday 1 min today

However on a 60 min chart, ES has run way above its correlation with EUR/USD as you can see.

 Short term the AUD/JPY is starting to go negative and I suspect this will probably lead in to next week with the former Carry favorite (one of 3) looking like its in an unwind.

The EUR/JPY 1 min is also showing the initial signs of weakness that should lead to a leg lower soon, probably next week if it keeps up.

 And the $USD/JPY looks like it is already in a leg lower with a small, short term consolidation or counter trend bounce as there's some small intraday strength (3c positive) in the $USD, but likely not enough to do much more than what you see above, consolidate before returning lower.

As to the EUR/USD intraday, there's some weakness building in, although I doubt we see any significant move down before the close, it looks more like it's in the process of building weakness for a move to the downside early next week, keep that in mind with the ES correlation that has run above where it should be.

The 1 day AUD/JPY carry pair since 2015 (yellow arrow) looking very much like a carry unwind.

The EUR/JPY, another former popular carry cross also looking like an unwind.

 Which leaves the popular USD/JPY. This is a 60 min chart, I suspect it's about to make a new leg lower.

The USd/JPY 1 day for the year (at the yellow arrow), also lost all upside momentum and looking like an unwind.

Why is this important. How do you think smart money gets leverage to up their AUM and buy more stocks? Through the carry trade so if they have to unwind the position because even a small loss in these is a huge loss because of the huge leverage of up to 100:1. Thus to unwind it, you must sell the asset you bought, sell the $USD and buy back the Yen. Perhaps this is why the long term $USD chart looks negative and the long term Yen chart is looking positive.

Remember I wrote 2 years ago that when the market moved lower, the Carry trade would be either first or with it.

It appears that's happening now.