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DailyFX Analysts Correctly Bet On Risk Aversion In October, Where Do They Stand Now?

Monday, 10 November 2008 14:33:15 GMT  |  John Rivera, Currency Analyst

The DailyFX analysts consistently shorted the Yen crosses as they bet on risk aversion in early October. The most popular pair was the USD/JPY which would drop nearly 1,400 pips during the first three weeks of the month. Analysts also placed wagers on EUR/JPY and AUD/JPY which realized similar moves.

DailyFX Analysts Correctly Bet On Risk Aversion In Early October, Where Do They Stand Now?

The DailyFX analysts consistently shorted the Yen crosses as they bet on risk aversion in early October. The most popular pair was the USD/JPY which would drop nearly 1,400 pips during the first three weeks of the month. Analysts also placed wagers on EUR/JPY and AUD/JPY which realized similar moves.



Early October saw the passing of the troubled asset relief program (TARP) by the U.S. which included $700 billion to remove toxic assets from banks balance sheets. This was followed by a coordinated rate cut on October 8th by the Fed, ECB, BoE, SNB and BoC.  G-7 leaders would also take several measures to support troubled banks and provide liquidity to the market. However, these moves didn’t distract our analysts as elevated LIBOR rates and extreme market volatility clued us to the fact that fear had gripped the markets and time was needed for these measures to instill confidence and impact price action. The expectation of prolonged risk aversion would fuel the Yen and sticking with the trend was the prudent move.



What Has Changed?

The Yen would ultimately weaken as evidence of the measures began to surface. 3- Month Libor rates have fallen to 2.29 from 4.32 a month ago as credit markets have started to thaw. However, concerns that a global recession is imminent, has led to the Yen crosses trading heavy again.  Volatility in the markets is a clear sign of investor fears and as we can see from the ViX measurement that despite a considerable decline from the height of the crisis, it remains at significantly elevated levels. As long as risk aversion dominates trader sentiment Yen crosses will remain under selling pressure. Indeed, the past week saw 5 out of 7 of our analyst pick to short a Yen pair.

 

See Our Picks Every Day As We give Our Trade Ideas On The Various Pairs.

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

 

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