The definition of insanity has often been quoted as doing the same thing but expecting different outcomes. During the 2008 GFC when global equity markets collapsed, the JPY crosses were massive movers in the FX space, led by AUD/JPY and GBP/JPY amongst the major crosses.
Since last week, the FX market (myself included) has been selling these same crosses as global equity markets were led lower by wobbles on the Chinese market.
BUT- in 2008 we were coming to the end of a 6/7 year run higher of FX market carry trades. The size of positions held by some of the big speculators was absolutely astronomical and it was really this sudden unwind which caused such a big collapse in AUD/JPY, GBP/JPY etc.
We are dealing with different conditions this time around. The market is short of AUD across the board and any further falls have to be driven by more speculative selling. So I’m struggling to see how this sell-off will sustain momentum, even if equity markets continue to wobble.
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