It was August 2nd and I was at the beach on a family vacation. I woke up around 4am and the first thing I do as usual is check the futures quotes from the night before. The S&P is down 5.50% here, the Nikkei is crashing headlines and there is another big Yen carry unwinding. I stayed as calm as I could, kissed my wife and kids goodbye, jumped in the car and headed back to my trading desk as fast as I could. I’ve seen this movie before. I traded at a hedge fund and was a senior technical analyst for a foreign exchange firm during the 2008 financial crisis and saw a big Yen carry unwinding. As soon as I got home I looked at the “yen crosses” to see how much they had gone up compared to 2008. I saw the Nikkei reportedly down 12% intraday, the worst drop since 1987. Here is the chart. To handicap this chart, here is a trick I used when I first started: The blue line is USD/JPY and if the line is pointing up, the first part of the pair is getting stronger against the second part. So if the blue line is pointing up, the USD is getting stronger against the Yen. If the line is pointing down, the dollar is getting weaker against the Yen and the Yen is getting stronger against the USD. If you look at the severity of the 2008 USD/JPY exchange rate drop compared to now, it’s not even in the same range. In fact, just two months ago, when the rate was at 165, many were complaining that the Yen was too weak and claiming that a crisis was coming. Now, when it has fallen and USD/JPY is at 145, many are claiming that the Yen is too strong and another crisis is coming and the carry trade is unwinding. You can see so much background by looking at the chart. I believe that the July 11 CPI coming in 0.1% below expectations is what caused this whole Yen carry trade unwinding. At that point, the market decided that the Fed was likely to cut rates at its September meeting, and that was all the catalyst it needed for people borrowing cheaply in the yen and investing in higher-yielding, more profitable overseas markets, such as U.S. tech stocks, to start unwinding their trades. Could this yen unwind go further? I think it could if the U.S. 10-year Treasury yield stays below 3.50%. But I don’t think it will happen. Yields, and the broader stock market, are carving out reliable support zones. The Nasdaq 100 ETF “QQQ” is pulling back into a price support zone from three sources: the 200-day moving average, the parallel channel support, and the lower 2021 high of $410 (which now serves as support). I remain bullish on the stock market, driven by the AI revolution. If the stock price remains above the $410 level after Nvidia’s earnings release on August 28, we may look back and think we should have stayed on the beach. -Todd Gordon, Founder of Inside Edge Capital, LLC Disclosure: All opinions expressed by CNBC Pro contributors are solely the opinions of the contributor and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliated companies, and may have been previously disseminated by the contributor on television, radio, the Internet or other mediums. The above content is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique circumstances. The above content may not be suitable for your particular situation. You should strongly consider seeking the advice of your own financial or investment advisor before making any financial decisions. Click here for the full disclaimer.
Yen, bond yields and Nvidia levels to watch to see when market volatility will end
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