Short term market sentiment can often drive the currency pair to a price level that does not make senses fundamentally. As my failed JPY trade unwinded in the morning, I've been too occupied with the NZDCAD play and totally disregarded the mean reversal aspect of FX as rate stray too far from general equilibrium.
My observation: the overcrowded JPY trade should leave the JPY weaken against all the other pairs and yet in the 2 hours after the gap down in JPY, one partcular pair defines the fundmental and that is NZDJPY. This is where being a contrarian perfectly helps, the UK and US traders have yet to be able to unwind all of their Long JPY since weekend thus there is a very likely chance it will drift the whole day and the strong bounce from NZD is odd as there is no major news for it this week.
This is a trade I only realize after observing the relative moment across all the crosses singled out by 1 currency at a time. As of this writing I'm seeing all the NZD and JPY agree strongly, short JPY and long NZD, fundamentally short JPY make sense but I'm reluctant to go along with long NZD thus I consider this a Neutral. If you want to have an expensive currency to bet against JPY, perhaps CAD is a better choice.
My observation: the overcrowded JPY trade should leave the JPY weaken against all the other pairs and yet in the 2 hours after the gap down in JPY, one partcular pair defines the fundmental and that is NZDJPY. This is where being a contrarian perfectly helps, the UK and US traders have yet to be able to unwind all of their Long JPY since weekend thus there is a very likely chance it will drift the whole day and the strong bounce from NZD is odd as there is no major news for it this week.
This is a trade I only realize after observing the relative moment across all the crosses singled out by 1 currency at a time. As of this writing I'm seeing all the NZD and JPY agree strongly, short JPY and long NZD, fundamentally short JPY make sense but I'm reluctant to go along with long NZD thus I consider this a Neutral. If you want to have an expensive currency to bet against JPY, perhaps CAD is a better choice.
