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SocGen Issue New Short NOK/JPY Trade Recommendation

NOK

SocGen issue new FX trade recco:

  • Short NOK/JPY with target of 11.20 and a stop-loss at 12.60
  • While the correlation between the yen and equities disappeared last summer, the recent underperformers of the carry basket are the usual safe-haven currencies (i.e. JPY and CHF).
  • This underperformance is however relative since the yen is almost flat despite stellar equities. All in all, this looks like an old-fashioned pro-carry phase in a world without carry. Amid more severe lockdowns and vaccination delays, some of the supposed irrationality of equity markets has also spread to FX markets.
  • NOK/JPY most at risk
  • At the extremes of this virtual carry trade, SocGen find the NOK and JPY. Since start-November, the 11% equity-like performance of NOK/JPY (the S&P 500 gained 15% over the same period) suggests that this cross is currently the most at risk in the G10 complex• Going short the carry trade is usually prohibitive in terms of interest rates.
  • But selling NOK/JPY now involves paying marginal carry, which makes it a very cheap macro hedge compared to the negative theta of a long volatility position in any asset class.
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