It always interesting observing price action between instruments and then weighing up the need to trade on these observations.

Watching for example $/¥ get smoked the other other day as the share markets got hosed, with the argument being there will be unwind of the carry on any sustained selloff. As the world equities bounced back, two days of rallying in $/¥ followed, though what was interesting was as the U.S equity futures suffered in Asia Thursday, were we going to see any significant selling? It appeared not, with the market holding up relatively well.

What happened to the correlation? And is this a sign that there would be further follow through buying? Should we gear up when we notice these medium term broken relationships across markets? What it does show is traders suffering, the market still caught short, and that there will be a need to unwind these positions, should there be any reason to do do. The squeeze just keeps squeezing. After this the market could be just as prone to establish contraction as further expansion, unless fundamentals provide a new catalyst for a move.


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