Top Currency Carry Trades to Start Your Week - 4/15

TL;DR

The top currency carry-trade setups for the week of 4/15 were euro-yen and Aussie-yen, supported primarily by yen weakness and the dollar-yen component. Euro-dollar broke 1.1280, while dollar-yen remained capped at 112.25, with 114 identified as a possible later test. Global yields also bounced alongside firm stocks, but upcoming Chinese data and PMIs warranted caution. Read on for the key levels and market signals.

Transcript

hi i'm pat relief from the Adamas principle big wheat last week for carry trades so I've got a bunch of slides to show you today last week it was all about risk on especially on Friday and dollar got hit although the dollar index did make a bit of a comeback through the dollar yen component so let's look at the first night euro dollar we break one ... Read More

Key Insights

• 🙈 Last week saw a risk-on sentiment, as indicated by the weakening of the dollar against the euro and the positive performance of carry trades.
• 💴 The dollar yen component played a crucial role in the performance of euro yen and Aussie yen.
• 🥺 Dollar yen is currently capped at 112.25, but a break above this level could lead to further gains and a possible test of 114.
• 🤘 Global bond yields and stocks experienced a bounce, showing signs of convergence between the two markets.
• ❤️‍🩹 Chinese data midweek and PMIs at the end of the week may influence the direction of the market, suggesting caution before celebrating a summer rally.
• 🥺 Higher yields are generally healthy for growth, but excessive increases may lead to intervention from the FOMC.

Questions & Answers

Q: What were the top currency carry trades to start the week of 4/15?

Euro-yen and Aussie-yen were described as the standout carry trades after a strong risk-on week. Their performance was driven mainly by the dollar-yen component, although Aussie-dollar also helped Aussie-yen.

Q: Why did euro-yen and Aussie-yen perform strongly?

The yen was hit hard, lifting yen crosses such as euro-yen and Aussie-yen. The speaker said dollar-yen did most of the heavy lifting in Aussie-yen’s move, with Aussie-dollar providing additional support.

Q: What key level did euro-dollar break?

Euro-dollar broke above 1.1280, which the speaker considered a significant level. The move was encouraging for dollar bears and carry traders, though follow-through on Monday and Tuesday was still needed.

Q: What levels mattered most for dollar-yen?

Dollar-yen was holding an elevated range around 111 to 112.25, with 112.25 acting as the cap. If that level gave way as part of a larger move, the existing page analysis identified 114 as a possible test.

Q: What was the outlook for euro-yen?

Euro-yen was called one of the “star pupils” among the currency pairs. After cracking 127 to the upside, the speaker expected its upward move to remain important during the week.

Q: How did dollar-CNH affect the broader currency market?

Dollar-CNH fell sharply in relative terms on Friday and was described as highly correlated with euro-dollar and broader dollar strength or weakness. Its decline accompanied broad dollar weakness and helped the risk-on environment for carry trades.

Q: What were global bond yields and stocks signaling?

U.S. 10-year and other major global yields were bouncing while stocks remained firm. The speaker said the earlier divergence between stocks and global bond yields appeared to be moving toward convergence.

Q: Was a summer rally confirmed?

No, the speaker said it was too early to celebrate and advised keeping the champagne on ice. Chinese data in the middle of the week and PMIs toward the end of the week were highlighted as important tests before calling a summer rally.

Summary & Key Takeaways

• Euro dollar broke the significant level of 1.1280, indicating potential bearishness for the dollar and positive sentiment for carry traders.

• Dollar yen was boosted by the weakening yen, but is currently capped at 112.25. A break above this level could lead to further gains and a possible test of 114.

• Euro yen and Aussie yen both showed strong performance, primarily driven by the dollar yen component.