I’ve made light of it before as it’s a handy thing for “non forex traders” to also consider keeping in mind.
The currency pair AUD/JPY has long ago been directly associated with the “risk on” trade, as traders simply borrow ( sell ) Yen ( as the base lending rate in Japan is practically 0% ), then invest (buy) the same money in a higher yielding currency such as AUD ( base interest rate currently paying 2.5% )
It’s essentially free money, and rests pretty much as “the backbone” for most major banks – as far as forex strategy is concerned.
When this trade “unwinds” ( when risk appetite wanes, and banks and major investors begin to seek “safety” ) you certainly don’t want to be on the other side of it – as the move is nothing short of amazing.
Lets take a look at the “unwind” back in 2008, and consider where we’re at with the pair today.
AUD_JPY_Forex_Kong_May_1_2014
The pair “peaked” right along side “peak activity” surrounding the Bank of Japans massive QE program and equally massive dilution of the Yen, sometime “around this time” a full year ago.
We can see that it’s done very little since, as “risk” apparently rages on ( as seen via U.S Equity prices ) in the West.
A “swing high” here marking a “lower high” on a monthly chart would prove to be a very, very powerful technical sign that the turn is indeed near, as big banks and institutions will have used these past few months to quietly whittle away, adding to positions here, selling a bit there, getting themselves into position slowly as to not turn price against them with any large-scale moves.
Until of course the large-scale moves commence ( as seen via the “red candle waterfall” of 2008 ) where the big boys have already gotten out and retail investors “unknowing” get caught holding the bag.
One has to consider that “if the Big Banks are running the show” ( as we all know they are ) – don’t you think they’ve got the info / knowledge / plans in place long before we ever hear of them?
Do you think the biggest players on the planet get “caught” suddenly realizing that things are turning? Or perhaps because they missed a bit on CNBC? There is absolutely 0% chance of this as it’s this is “their market” and the house always wins.
Equities in the West continue to grind as the turn has already been realized in Japan. These past 4 or 5 days are again what we call “distribution days” as big players unload to those late to the party, in preparation for the next “real money to be made” on the short side of town. Currency wise a large and solid “short AUD position” has been building for quite some time, as other “risk off trades” slowly fall into place day-to-day.
Very relaxed here as positioning is well underway and the tiny squiggles don’t really mean much at this point.
I can’t see how unemployment data out of the U.S ( 344,000 more last week ) could be helping anyone with their medium and longer term trade ideas, but I’d love to hear the arguement.
Good luck everyone, and have a good weekend.
The Smart Money Has Already Moved – Why You’re Always Late to the Party
Here’s what separates the wolves from the sheep in this game – timing. While retail traders scramble to decode yesterday’s news, the smart money moved six months ago. That AUD/JPY chart isn’t just showing you price action; it’s showing you the breadcrumbs of institutional positioning that’s already baked into the next major move.
The carry trade unwind we witnessed in 2008 didn’t happen overnight. It was orchestrated, calculated, and executed with surgical precision while mom and pop investors were still reading about “safe haven currencies” in weekend newspapers. The same playbook is running today, just with different actors and bigger stakes.
Distribution Phase: The Quiet Before The Storm
Those seemingly boring sideways moves in AUD/JPY over recent months? That’s not consolidation – that’s distribution. Big banks don’t dump positions like amateur traders panic-selling their crypto bags. They distribute slowly, methodically, creating artificial stability while they position for the next tsunami.
Every uptick becomes an opportunity to offload more risk to unsuspecting buyers. Every minor dip gets bought by retail traders thinking they’re catching a “discount.” This is how the house maintains its edge – by making their exit look like your opportunity.
The technical signs are screaming if you know how to listen. Lower highs on monthly timeframes don’t lie, especially when paired with deteriorating fundamentals that mainstream media hasn’t caught onto yet.
Currency Correlations: The Domino Effect Nobody Sees Coming
AUD/JPY doesn’t trade in isolation. It’s the canary in the coal mine for global risk appetite, but more importantly, it’s the trigger for a cascade of currency moves that will catch traders off guard. When this pair breaks, it breaks hard and takes everything else with it.
The correlation with equity markets isn’t coincidental – it’s mechanical. As institutional money flows shift from risk-on to risk-off positioning, the velocity increases exponentially. What starts as a trickle becomes a flood, and retail traders holding the wrong side of these moves get absolutely demolished.
Watch the cross-currency relationships closely. When AUD starts weakening against multiple majors simultaneously, that’s not random market noise – that’s coordinated institutional repositioning ahead of a major shift.
The Federal Reserve’s Hidden Hand
Here’s what CNBC won’t tell you – the Fed’s policy decisions are already reflected in institutional positioning months before they’re announced. The USD weakness we’re seeing isn’t happening in a vacuum.
Central bank coordination happens behind closed doors, in meetings that never make headlines. By the time retail traders react to official announcements, the real money has already been made by those who positioned correctly based on advanced knowledge of policy shifts.
The Japanese monetary authorities aren’t passive observers in this game. Their intervention capabilities remain substantial, and when they decide to act, it won’t be telegraphed through press releases.
Positioning for the Inevitable
Smart traders aren’t trying to time the exact bottom or top – they’re building positions that profit from the inevitable volatility explosion. The current environment of artificial calm is creating complacency that will be brutally punished when reality reasserts itself.
Risk management becomes critical here because when these moves start, they accelerate beyond what most traders expect. Position sizing that looks conservative today becomes catastrophically large when volatility spikes 300% overnight.
The market cycles we’re witnessing now have historical precedent, but the magnitude could exceed previous episodes due to the unprecedented scale of global monetary intervention over the past decade.
Don’t get caught holding someone else’s bags when the music stops. The institutions have been quietly exiting risk positions while retail traders chase momentum. When the unwind accelerates, there won’t be time to react – only time to count losses or profits based on which side of this trade you positioned yourself on today.
