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Friday, February 8, 2008

The Yen As A Leading Indicator

The Yen as a leading indicator worked well intraday yesterday. I mentioned it possibility yesterday in Watch The Yen, Carry Trade Unwind.

Ever since the Credit Crunch first hit, equities have been extremely sensitive to risk aversion and de-leveraging. The Yen best captures both these elements and captures them quickly.

This relationship was apparent early in the Credit Crunch:
(07/26/07) Yen Advances After Equity Declines Prompt Carry Trade Unwinds
(07/27/07) Bond Risk Soars by Record as Investors Flee Corporate Debt
(07/31/07) The Yen Carry Trade: Will They Put It Back On?
(08/17/07) Bernanke Flinches

This relationship will be most pronounced during times of financial stress and will gradually fade as the great global de-leveraging winds down.


fuguez said...

Superb spot.
I think that the relationship works better than simply using the dollar index.

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