the global financial crisis (2007-2009) reshaped FX markets in ways that still affect trading today. the spot-market story isn't the most-told but is structurally important.
the context. through 2002-2007, the US dollar had been weakening for years (the 2002-2017 regime in long-run terms). EUR/USD ran from 1.20 to 1.60. capital was flowing into emerging markets and risk assets globally. yen carry trade was at extremes. AUD, NZD, and EM currencies were strong on commodity boom narrative.
the FX dynamics through the crisis:
phase 1 · pre-crisis (early 2007). subprime credit problems begin appearing. initial FX impact: mostly invisible. carry trades continued. "contained" was the consensus view.
phase 2 · summer 2007 stress. august 2007: BNP paribas freezes redemptions on three funds with US mortgage exposure. EUR/USD spikes from 1.36 to 1.39 in days. early signal.
phase 3 · 2008 bear stearns. march 2008: bear stearns collapses. JPM acquires it with fed backing. FX impact: USD weakens further as US financial stress is highlighted. EUR/USD peaks at 1.60 in july 2008.
phase 4 · lehman collapse (september 2008). everything changed. classic safe-haven flight: USD strengthened sharply (the "flight to quality" trade); JPY strengthened even more (carry unwind); CHF strengthened (european safe haven); EUR weakened; AUD, NZD, EM all sold off dramatically.
USD/JPY went from 110 to 88 in 5 weeks. EUR/JPY went from 162 to 115 (-29%). EUR/USD went from 1.60 to 1.25 (-22%). AUD/USD halved. these are some of the largest currency moves in modern history.
phase 5 · QE era (2009 onward). fed launches QE1 (March 2009), then QE2 (November 2010), then QE3 (September 2012). these inject dollars into the system through bond buying. the dollar weakened on QE rounds, then strengthened as the US economy recovered ahead of others.
four structural lessons from the GFC FX story:
first — the dollar is the global safe haven in stress, regardless of whether the US is the source of the stress. people sell everything to get dollars. this means USD strengthens in crises even when the US is at the center of the crisis. paradoxical but consistently true since 2008.
second — carry trades unwind violently. through 2008, JPY-funded carry positions in AUD, NZD, brazilian real all unwound at the same time. the unwind moved currencies 20-40%. the lesson: carry trade returns are short volatility — positive when calm, devastating when stress.
third — central bank intervention in FX increased after 2008. the fed established USD swap lines with major foreign central banks to ensure dollar liquidity globally. these swap lines have been reactivated in subsequent crises (eurozone debt 2011, COVID 2020). they're now structural infrastructure.
fourth — implied vol regime changed. pre-2008, FX implied vol was structurally low (around 10%). post-2008, vol regimes have included longer periods of elevated levels (15%+) reflecting persistent macro uncertainty.
the modern echo. when COVID hit in march 2020, the same pattern repeated: USD strengthened on safe-haven flight, JPY strengthened, carry currencies sold off. the pattern wasn't unique to 2008; it's a structural feature of how FX markets respond to systemic stress.
for any trader operating in an environment where macro stress might recur (which is always), the GFC FX playbook is essential reading. it's not predictive of timing, but it's directional: when stress comes, certain currencies behave in specific ways, and being on the wrong side compounds the damage.
the context. through 2002-2007, the US dollar had been weakening for years (the 2002-2017 regime in long-run terms). EUR/USD ran from 1.20 to 1.60. capital was flowing into emerging markets and risk assets globally. yen carry trade was at extremes. AUD, NZD, and EM currencies were strong on commodity boom narrative.
the FX dynamics through the crisis:
phase 1 · pre-crisis (early 2007). subprime credit problems begin appearing. initial FX impact: mostly invisible. carry trades continued. "contained" was the consensus view.
phase 2 · summer 2007 stress. august 2007: BNP paribas freezes redemptions on three funds with US mortgage exposure. EUR/USD spikes from 1.36 to 1.39 in days. early signal.
phase 3 · 2008 bear stearns. march 2008: bear stearns collapses. JPM acquires it with fed backing. FX impact: USD weakens further as US financial stress is highlighted. EUR/USD peaks at 1.60 in july 2008.
phase 4 · lehman collapse (september 2008). everything changed. classic safe-haven flight: USD strengthened sharply (the "flight to quality" trade); JPY strengthened even more (carry unwind); CHF strengthened (european safe haven); EUR weakened; AUD, NZD, EM all sold off dramatically.
USD/JPY went from 110 to 88 in 5 weeks. EUR/JPY went from 162 to 115 (-29%). EUR/USD went from 1.60 to 1.25 (-22%). AUD/USD halved. these are some of the largest currency moves in modern history.
phase 5 · QE era (2009 onward). fed launches QE1 (March 2009), then QE2 (November 2010), then QE3 (September 2012). these inject dollars into the system through bond buying. the dollar weakened on QE rounds, then strengthened as the US economy recovered ahead of others.
four structural lessons from the GFC FX story:
first — the dollar is the global safe haven in stress, regardless of whether the US is the source of the stress. people sell everything to get dollars. this means USD strengthens in crises even when the US is at the center of the crisis. paradoxical but consistently true since 2008.
second — carry trades unwind violently. through 2008, JPY-funded carry positions in AUD, NZD, brazilian real all unwound at the same time. the unwind moved currencies 20-40%. the lesson: carry trade returns are short volatility — positive when calm, devastating when stress.
third — central bank intervention in FX increased after 2008. the fed established USD swap lines with major foreign central banks to ensure dollar liquidity globally. these swap lines have been reactivated in subsequent crises (eurozone debt 2011, COVID 2020). they're now structural infrastructure.
fourth — implied vol regime changed. pre-2008, FX implied vol was structurally low (around 10%). post-2008, vol regimes have included longer periods of elevated levels (15%+) reflecting persistent macro uncertainty.
the modern echo. when COVID hit in march 2020, the same pattern repeated: USD strengthened on safe-haven flight, JPY strengthened, carry currencies sold off. the pattern wasn't unique to 2008; it's a structural feature of how FX markets respond to systemic stress.
for any trader operating in an environment where macro stress might recur (which is always), the GFC FX playbook is essential reading. it's not predictive of timing, but it's directional: when stress comes, certain currencies behave in specific ways, and being on the wrong side compounds the damage.
the phrase "currency wars" gets used loosely in financial media. it refers to a specific dynamic in international monetary economics that's worth understanding precisely.
the definition. "currency wars" describes a situation where multiple countries simultaneously try to weaken their own currencies to gain export competitiveness or stimulate growth. the weapons include rate cuts, intervention, quantitative easing, and verbal jawboning.
the mechanic. a weaker currency makes a country's exports cheaper for foreign buyers, helping the export sector. it also makes imports more expensive, supporting domestic inflation. for an economy struggling with weak growth or low inflation, a weaker currency is helpful.
the problem. when multiple countries pursue this strategy simultaneously, the net effect is unclear. you can't all be weaker than each other. eventually, the relative competitive moves cancel out, and the only effect is global monetary loosening — which can fuel asset bubbles, increase inflation, and create instability.
historical examples:
1930s. the great depression era saw competitive devaluations as countries abandoned the gold standard one by one. britain (1931), the US (1933), france (1936). each devaluation gave the country an export advantage temporarily, but as others followed, the advantage disappeared. the result was deeper depression and trade collapse.
2010-2014. post-GFC. brazilian finance minister guido mantega coined the modern phrase "currency war" in september 2010 to describe US QE2 and similar policies that were weakening major currencies and pushing capital into emerging markets. brazil and other EM economies tried to push back through intervention and capital controls.
2015-2016. china devalued the yuan unexpectedly in august 2015, then again in early 2016. this triggered concerns about a coordinated EM devaluation cycle that could destabilize global markets. it didn't fully materialize but came close.
2022-2024. inverse currency war: every major central bank tightening simultaneously. the US, EU, UK, canada, australia all raising rates. the dollar strengthened in this regime, but the inverse dynamic was also present: nobody wanted to be the WEAKEST currency.
the modern dynamics worth knowing:
first — currency wars are usually a symptom of slow growth. when economies are growing well, no one wants a weaker currency (it raises inflation). when growth is slow, currency weakness becomes attractive as a stimulus tool.
second — the strongest currency in a currency war is usually the one that's politically unable to weaken. the dollar in 1985 plaza era; the yen post-2000 as japan failed to escape deflation. structural strength becomes a curse when policy needs weakness.
third — central banks have learned the limits. coordinated weakening (plaza accord) is one model. individual weakening with everyone else holding rates is another. but the post-2008 era has been characterized more by coordinated direction (all tight, then all easing, then all tight) than by competitive devaluation.
fourth — geopolitical currency competition matters. the rise of CNY as an alternative to USD in trade settlement, sanctions creating de-dollarization pressure, BRICS currency discussions — these are slow but real shifts in the long-run currency landscape. they're not currency wars in the classical sense but they're related dynamics.
the practical implication for FX traders. when you see "currency war" in headlines, understand what's actually meant. is it real competitive devaluation? is it a metaphor for monetary divergence? is it political rhetoric? the specifics matter for trading implications.
rarely is the dramatic version actually happening. but the dynamics it describes — countries trying to manage their currencies relative to others — is happening constantly. understanding that helps interpret macro flow.
the definition. "currency wars" describes a situation where multiple countries simultaneously try to weaken their own currencies to gain export competitiveness or stimulate growth. the weapons include rate cuts, intervention, quantitative easing, and verbal jawboning.
the mechanic. a weaker currency makes a country's exports cheaper for foreign buyers, helping the export sector. it also makes imports more expensive, supporting domestic inflation. for an economy struggling with weak growth or low inflation, a weaker currency is helpful.
the problem. when multiple countries pursue this strategy simultaneously, the net effect is unclear. you can't all be weaker than each other. eventually, the relative competitive moves cancel out, and the only effect is global monetary loosening — which can fuel asset bubbles, increase inflation, and create instability.
historical examples:
1930s. the great depression era saw competitive devaluations as countries abandoned the gold standard one by one. britain (1931), the US (1933), france (1936). each devaluation gave the country an export advantage temporarily, but as others followed, the advantage disappeared. the result was deeper depression and trade collapse.
2010-2014. post-GFC. brazilian finance minister guido mantega coined the modern phrase "currency war" in september 2010 to describe US QE2 and similar policies that were weakening major currencies and pushing capital into emerging markets. brazil and other EM economies tried to push back through intervention and capital controls.
2015-2016. china devalued the yuan unexpectedly in august 2015, then again in early 2016. this triggered concerns about a coordinated EM devaluation cycle that could destabilize global markets. it didn't fully materialize but came close.
2022-2024. inverse currency war: every major central bank tightening simultaneously. the US, EU, UK, canada, australia all raising rates. the dollar strengthened in this regime, but the inverse dynamic was also present: nobody wanted to be the WEAKEST currency.
the modern dynamics worth knowing:
first — currency wars are usually a symptom of slow growth. when economies are growing well, no one wants a weaker currency (it raises inflation). when growth is slow, currency weakness becomes attractive as a stimulus tool.
second — the strongest currency in a currency war is usually the one that's politically unable to weaken. the dollar in 1985 plaza era; the yen post-2000 as japan failed to escape deflation. structural strength becomes a curse when policy needs weakness.
third — central banks have learned the limits. coordinated weakening (plaza accord) is one model. individual weakening with everyone else holding rates is another. but the post-2008 era has been characterized more by coordinated direction (all tight, then all easing, then all tight) than by competitive devaluation.
fourth — geopolitical currency competition matters. the rise of CNY as an alternative to USD in trade settlement, sanctions creating de-dollarization pressure, BRICS currency discussions — these are slow but real shifts in the long-run currency landscape. they're not currency wars in the classical sense but they're related dynamics.
the practical implication for FX traders. when you see "currency war" in headlines, understand what's actually meant. is it real competitive devaluation? is it a metaphor for monetary divergence? is it political rhetoric? the specifics matter for trading implications.
rarely is the dramatic version actually happening. but the dynamics it describes — countries trying to manage their currencies relative to others — is happening constantly. understanding that helps interpret macro flow.
three more books for the desk library. specifically about FX history and central banking. complement to the macro books we recommended earlier.
one: "the dollar trap" by eswar prasad. 2014.
what it covers: a structural analysis of why the US dollar remains globally dominant despite repeated predictions of its decline. prasad — former IMF china division chief, current cornell professor — walks through the network effects, reserve dynamics, and trade-invoicing reasons the dollar is durable.
why read it: most retail FX traders develop a directional view on "the dollar" without understanding the structural reasons for its persistence. prasad gives you that structure. the dollar's role isn't going to disappear because of fed mistakes or sanctions discussions; the structure has decades of inertia behind it. understanding that calibrates dollar-bearish theses against reality.
two: "lords of finance" by liaquat ahamed. 2009. pulitzer prize.
what it covers: the 1920s-1930s era through the perspective of four central bankers: montagu norman (bank of england), benjamin strong (federal reserve), hjalmar schacht (reichsbank), émile moreau (banque de france). their decisions in the 1920s gold standard era and 1930s currency war era reshaped the modern world.
why read it: central bank decisions today are made by individuals operating under specific political pressures. understanding the personalities, conflicts, and institutional constraints of historical central bankers makes current FOMC and ECB dynamics more interpretable. powell and lagarde face their versions of what these four faced. patterns recur.
three: "the volcker rule: a guide to the new regulation of proprietary trading by banks" — sounds dry. read the introduction at least.
actually, replace this with: "the fed and lehman brothers" by laurence ball. 2018.
what it covers: a detailed forensic analysis of the fed's decision-making during the lehman brothers collapse weekend (september 12-15 2008). ball argues that the fed could have rescued lehman under existing legal authority and chose not to. major implications for understanding how central bank crisis decisions actually get made.
why read it: central bank policy in normal times is one thing. in crisis, decisions get made under pressure with incomplete information. understanding how those decisions actually unfold — not how they're explained later — is essential for anyone whose trading depends on central bank actions. lehman is the cleanest case study available.
these three add the historical and institutional layer to the more analytical books we recommended earlier (rickards, reinhart/rogoff, kindleberger). the analytical books teach frameworks. these historical books teach how the frameworks were created by specific people in specific contexts.
the combined reading list — six books — is roughly 100 hours of careful reading. that investment compounds across years of macro reading and trading. it's a small price for the depth it adds.
the broader point. FX as practiced today is the result of specific historical decisions: bretton woods (1944), nixon shock (1971), plaza accord (1985), GFC responses (2008-9), COVID responses (2020). knowing how each of these came about is part of being literate about the current system. these books give you that literacy.
three more books. on actual paper if you can.
one: "the dollar trap" by eswar prasad. 2014.
what it covers: a structural analysis of why the US dollar remains globally dominant despite repeated predictions of its decline. prasad — former IMF china division chief, current cornell professor — walks through the network effects, reserve dynamics, and trade-invoicing reasons the dollar is durable.
why read it: most retail FX traders develop a directional view on "the dollar" without understanding the structural reasons for its persistence. prasad gives you that structure. the dollar's role isn't going to disappear because of fed mistakes or sanctions discussions; the structure has decades of inertia behind it. understanding that calibrates dollar-bearish theses against reality.
two: "lords of finance" by liaquat ahamed. 2009. pulitzer prize.
what it covers: the 1920s-1930s era through the perspective of four central bankers: montagu norman (bank of england), benjamin strong (federal reserve), hjalmar schacht (reichsbank), émile moreau (banque de france). their decisions in the 1920s gold standard era and 1930s currency war era reshaped the modern world.
why read it: central bank decisions today are made by individuals operating under specific political pressures. understanding the personalities, conflicts, and institutional constraints of historical central bankers makes current FOMC and ECB dynamics more interpretable. powell and lagarde face their versions of what these four faced. patterns recur.
three: "the volcker rule: a guide to the new regulation of proprietary trading by banks" — sounds dry. read the introduction at least.
actually, replace this with: "the fed and lehman brothers" by laurence ball. 2018.
what it covers: a detailed forensic analysis of the fed's decision-making during the lehman brothers collapse weekend (september 12-15 2008). ball argues that the fed could have rescued lehman under existing legal authority and chose not to. major implications for understanding how central bank crisis decisions actually get made.
why read it: central bank policy in normal times is one thing. in crisis, decisions get made under pressure with incomplete information. understanding how those decisions actually unfold — not how they're explained later — is essential for anyone whose trading depends on central bank actions. lehman is the cleanest case study available.
these three add the historical and institutional layer to the more analytical books we recommended earlier (rickards, reinhart/rogoff, kindleberger). the analytical books teach frameworks. these historical books teach how the frameworks were created by specific people in specific contexts.
the combined reading list — six books — is roughly 100 hours of careful reading. that investment compounds across years of macro reading and trading. it's a small price for the depth it adds.
the broader point. FX as practiced today is the result of specific historical decisions: bretton woods (1944), nixon shock (1971), plaza accord (1985), GFC responses (2008-9), COVID responses (2020). knowing how each of these came about is part of being literate about the current system. these books give you that literacy.
three more books. on actual paper if you can.
end of the second cycle. three weeks in total since the new editorial line started (week 1 of original cycle, plus weeks 1-2 of the new structured cycle). ~65 posts.
what we've covered, broadly:
foundations (week 1):
— editorial principles · FX market structure · rate differentials · OIS curve · tier-1 prints · macro frames · leverage · carry trade · JPY dynamics · participant types · reserves · bond-FX link · scams · regulators
depth (week 2):
— commodity / scandi / asian currencies · CNY management · option market · forward markets · settlement · EBS · ratings · elections · fair value models · capital controls · exchange rate regimes
history (week 3):
— bretton woods · plaza accord · asian crisis 1997 · GFC 2008 · 50-year dollar trend · currency wars · central bank communication
together: a foundational education in modern fx. concepts, mechanics, structure, history. all evergreen. all framework-oriented. all compliance-clean.
what we have NOT done, consistently:
— zero trade calls. zero "long X at Y, stop Z, target W."
— zero performance claims. zero P&L screenshots.
— zero broker affiliate links.
— zero urgency. no countdown timers, no FOMO.
— zero individual identity dependency. the brand stands on the work, not on personalities.
the absence of those things is the editorial identity. they're the cheap clicks. we ran the experiment without them and the engagement still grew. that's data worth noting.
next directions, going forward:
— more specific currency complex analysis (LATAM crosses, africa, frontier markets) as readers request.
— more macro-data analysis: deep dives on what specific data prints actually mean for currency direction.
— more cross-channel features with @equilon_mike (asia desk) and @equilon_alex (london/NY) as those channels develop.
— continued historical case studies. each major fx event has lessons that recur in modern context.
the rhythm continues. weekly: foundational education, macro context, industry observation, Q&A, occasional brand recalibration.
the work compounds because readers keep reading. that's the only way this works. we don't have a marketing budget. we don't run paid ads. the channel grows because the content earns its place in your feed.
thanks for that. it's not nothing.
on to the next cycle.
what we've covered, broadly:
foundations (week 1):
— editorial principles · FX market structure · rate differentials · OIS curve · tier-1 prints · macro frames · leverage · carry trade · JPY dynamics · participant types · reserves · bond-FX link · scams · regulators
depth (week 2):
— commodity / scandi / asian currencies · CNY management · option market · forward markets · settlement · EBS · ratings · elections · fair value models · capital controls · exchange rate regimes
history (week 3):
— bretton woods · plaza accord · asian crisis 1997 · GFC 2008 · 50-year dollar trend · currency wars · central bank communication
together: a foundational education in modern fx. concepts, mechanics, structure, history. all evergreen. all framework-oriented. all compliance-clean.
what we have NOT done, consistently:
— zero trade calls. zero "long X at Y, stop Z, target W."
— zero performance claims. zero P&L screenshots.
— zero broker affiliate links.
— zero urgency. no countdown timers, no FOMO.
— zero individual identity dependency. the brand stands on the work, not on personalities.
the absence of those things is the editorial identity. they're the cheap clicks. we ran the experiment without them and the engagement still grew. that's data worth noting.
next directions, going forward:
— more specific currency complex analysis (LATAM crosses, africa, frontier markets) as readers request.
— more macro-data analysis: deep dives on what specific data prints actually mean for currency direction.
— more cross-channel features with @equilon_mike (asia desk) and @equilon_alex (london/NY) as those channels develop.
— continued historical case studies. each major fx event has lessons that recur in modern context.
the rhythm continues. weekly: foundational education, macro context, industry observation, Q&A, occasional brand recalibration.
the work compounds because readers keep reading. that's the only way this works. we don't have a marketing budget. we don't run paid ads. the channel grows because the content earns its place in your feed.
thanks for that. it's not nothing.
on to the next cycle.
cycle three starts here.
the first cycle covered foundations — how the FX market is structured, who the participants are, what actually drives price. the second cycle went deeper: rate differentials, central bank mechanics, long-run dollar history, post-mortems.
cycle three is applied frameworks. how to think about pairs, how to read macro in real time, and the specific tools that experienced traders actually use versus the tools retail gets sold.
same format. same rhythm. no selling anything. the desk publishes what the desk finds useful.
let's start with something most retail traders get structurally wrong: what a currency pair is actually measuring.
the first cycle covered foundations — how the FX market is structured, who the participants are, what actually drives price. the second cycle went deeper: rate differentials, central bank mechanics, long-run dollar history, post-mortems.
cycle three is applied frameworks. how to think about pairs, how to read macro in real time, and the specific tools that experienced traders actually use versus the tools retail gets sold.
same format. same rhythm. no selling anything. the desk publishes what the desk finds useful.
let's start with something most retail traders get structurally wrong: what a currency pair is actually measuring.
liquidity is not constant. it changes by session, by day, and by event.
three sessions, three liquidity profiles.
asia (tokyo open, 00:00-09:00 UTC): thinner liquidity on most pairs except JPY crosses. USDJPY, EURJPY, AUDJPY show the most activity. EURUSD often coils. spreads are wider on most majors than in london or NY.
london (08:00-17:00 UTC): the highest-liquidity window globally. most major FX volume prints here. london open is the most volatile 2-hour window of the day for European pairs. genuine directional moves happen here.
new york (13:00-22:00 UTC): heavy overlap with london through 17:00 UTC. macro data releases drive USD pairs. after london close, liquidity thins and moves become less reliable.
practical point: if you're trading EURUSD from asia, you are trading in thin conditions with limited participation. that's not wrong — but know what game you're in.
three sessions, three liquidity profiles.
asia (tokyo open, 00:00-09:00 UTC): thinner liquidity on most pairs except JPY crosses. USDJPY, EURJPY, AUDJPY show the most activity. EURUSD often coils. spreads are wider on most majors than in london or NY.
london (08:00-17:00 UTC): the highest-liquidity window globally. most major FX volume prints here. london open is the most volatile 2-hour window of the day for European pairs. genuine directional moves happen here.
new york (13:00-22:00 UTC): heavy overlap with london through 17:00 UTC. macro data releases drive USD pairs. after london close, liquidity thins and moves become less reliable.
practical point: if you're trading EURUSD from asia, you are trading in thin conditions with limited participation. that's not wrong — but know what game you're in.
order flow is the underlying reality that technical analysis approximates.
price moves because someone buys or sells a size that the other side of the market doesn't immediately absorb. the chart you see is the record of those transactions.
this is why support and resistance levels work — not because of chart patterns, but because orders cluster at predictable levels. institutions have buy orders at round numbers. stop-losses cluster just below prior lows. the chart doesn't cause the move; the orders do. the chart just maps where the orders probably are.
the practical takeaway: when you draw a support level, you are hypothesizing that there is real buy interest at that price. sometimes there is. sometimes it has already been absorbed or hasn't arrived yet.
price action is real. the explanation in retail trading lore (the line "acted as support") often isn't. orders cause support, not lines.
price moves because someone buys or sells a size that the other side of the market doesn't immediately absorb. the chart you see is the record of those transactions.
this is why support and resistance levels work — not because of chart patterns, but because orders cluster at predictable levels. institutions have buy orders at round numbers. stop-losses cluster just below prior lows. the chart doesn't cause the move; the orders do. the chart just maps where the orders probably are.
the practical takeaway: when you draw a support level, you are hypothesizing that there is real buy interest at that price. sometimes there is. sometimes it has already been absorbed or hasn't arrived yet.
price action is real. the explanation in retail trading lore (the line "acted as support") often isn't. orders cause support, not lines.
the interest rate differential is the gravitational pull of a currency pair.
if US rates are at 5% and EUR rates are at 3%, holding dollars earns you more than holding euros overnight. in equilibrium, this difference should be reflected in the forward exchange rate — the currency with the higher rate trades at a forward discount (you give back the rate advantage on roll).
in practice, this creates carry trades: borrow the low-rate currency (JPY, CHF historically), deploy into the high-rate currency (USD, AUD, EM currencies). collect the rate differential daily as a swap/rollover credit.
the risk: carry trades work until they don't. when risk appetite drops sharply, the carry unwind is violent. the pairs that drifted up slowly for months (USDJPY, AUDJPY) can drop 5-10% in days as carry positions are unwound simultaneously.
the carry trade is a yield-collection strategy with hidden tail risk. understand the asymmetry before size.
if US rates are at 5% and EUR rates are at 3%, holding dollars earns you more than holding euros overnight. in equilibrium, this difference should be reflected in the forward exchange rate — the currency with the higher rate trades at a forward discount (you give back the rate advantage on roll).
in practice, this creates carry trades: borrow the low-rate currency (JPY, CHF historically), deploy into the high-rate currency (USD, AUD, EM currencies). collect the rate differential daily as a swap/rollover credit.
the risk: carry trades work until they don't. when risk appetite drops sharply, the carry unwind is violent. the pairs that drifted up slowly for months (USDJPY, AUDJPY) can drop 5-10% in days as carry positions are unwound simultaneously.
the carry trade is a yield-collection strategy with hidden tail risk. understand the asymmetry before size.
how the ECB works, and why it moves EURUSD.
the European Central Bank sets monetary policy for 20 countries sharing the euro. unlike the Fed (one economy, one mandate focused on employment and inflation), the ECB manages the divergent needs of economies ranging from Germany to Greece.
key tools:
— deposit facility rate: what banks earn leaving cash at the ECB overnight. the primary policy rate. currently the main market focus.
— TLTRO and PEPP/APP: asset purchase programs used during crises. QE/QT cycle affects EUR supply.
— forward guidance: ECB communication shapes market pricing of future rate path more than any single meeting.
ECB meetings are eight times per year. the statement, the press conference, and lagarde's language all move EURUSD. markets price the policy path months ahead — the actual rate change at any given meeting is often already in price by the time it happens.
what matters is the delta between what the market expected and what was communicated.
the European Central Bank sets monetary policy for 20 countries sharing the euro. unlike the Fed (one economy, one mandate focused on employment and inflation), the ECB manages the divergent needs of economies ranging from Germany to Greece.
key tools:
— deposit facility rate: what banks earn leaving cash at the ECB overnight. the primary policy rate. currently the main market focus.
— TLTRO and PEPP/APP: asset purchase programs used during crises. QE/QT cycle affects EUR supply.
— forward guidance: ECB communication shapes market pricing of future rate path more than any single meeting.
ECB meetings are eight times per year. the statement, the press conference, and lagarde's language all move EURUSD. markets price the policy path months ahead — the actual rate change at any given meeting is often already in price by the time it happens.
what matters is the delta between what the market expected and what was communicated.
technical levels in FX: what actually holds versus what looks good on charts.
levels that tend to hold:
— round numbers (1.1000, 150.00, 1.3000). not because they're magical, but because institutions place orders there and retail stop-losses cluster near them.
— prior major swing highs/lows. these mark price memory — where buyers or sellers previously absorbed significant supply/demand.
— option strikes (large gamma concentrations). when a significant amount of options expire at a level, dealers hedge in ways that pin price near that level into expiry.
levels that often don't hold:
— arbitrary fibonacci levels drawn from the wrong swing points.
— support/resistance lines drawn on small timeframes and applied to large moves.
— levels that have been tested many times. the more often a level is tested without breaking, the more orders are absorbed. eventual break becomes more likely, not less.
use levels as hypothesis, not certainty. they mark where orders probably are, not where the market must stop.
levels that tend to hold:
— round numbers (1.1000, 150.00, 1.3000). not because they're magical, but because institutions place orders there and retail stop-losses cluster near them.
— prior major swing highs/lows. these mark price memory — where buyers or sellers previously absorbed significant supply/demand.
— option strikes (large gamma concentrations). when a significant amount of options expire at a level, dealers hedge in ways that pin price near that level into expiry.
levels that often don't hold:
— arbitrary fibonacci levels drawn from the wrong swing points.
— support/resistance lines drawn on small timeframes and applied to large moves.
— levels that have been tested many times. the more often a level is tested without breaking, the more orders are absorbed. eventual break becomes more likely, not less.
use levels as hypothesis, not certainty. they mark where orders probably are, not where the market must stop.
how to think about the USD in a multi-driver environment.
the USD is driven by several factors simultaneously, and their relative importance shifts by cycle.
during rate-hiking cycles: the primary driver is the rate differential. USD strengthens when the Fed is ahead of other central banks in tightening. 2022 is the clearest recent example.
during risk-off events: USD strengthens as a safe haven and funding currency. when global credit tightens or equity markets crack, dollar demand spikes. 2008, march 2020.
during risk-on periods with synchronized global growth: USD weakens as capital flows to higher-beta assets and currencies. 2017 is a clear example.
during late-cycle or US-specific stress: the dollar smile inverts. USD can weaken even as rates stay high if growth concerns dominate.
understanding which regime is primary at any given time prevents you from applying the wrong model to a legitimate USD move.
the USD is driven by several factors simultaneously, and their relative importance shifts by cycle.
during rate-hiking cycles: the primary driver is the rate differential. USD strengthens when the Fed is ahead of other central banks in tightening. 2022 is the clearest recent example.
during risk-off events: USD strengthens as a safe haven and funding currency. when global credit tightens or equity markets crack, dollar demand spikes. 2008, march 2020.
during risk-on periods with synchronized global growth: USD weakens as capital flows to higher-beta assets and currencies. 2017 is a clear example.
during late-cycle or US-specific stress: the dollar smile inverts. USD can weaken even as rates stay high if growth concerns dominate.
understanding which regime is primary at any given time prevents you from applying the wrong model to a legitimate USD move.
Why Everything Crashed All at Once
On Friday, a strong U.S. jobs report was released—nearly double the forecast. Following the report, stocks, gold, silver, and Bitcoin all fell. The report served as a trigger, but not the cause. The cause lies in Japan.
For many years, investors have been borrowing cheap yen at near-zero interest rates and investing that money in income-generating assets around the world: tech stocks, artificial intelligence, gold, and Bitcoin. This is a carry trade. Therefore, the price of many assets is backed by total debt in yen—and when this scheme stops working, the assets fall together.
Three factors have now converged:
— expensive oil due to tensions surrounding Iran is increasing companies’ costs and reducing their profits;
— a weak yen, which Japan has been unable to prop up even by selling its dollars;
— a strong U.S. economic report, after which investors stopped expecting a rate cut in the U.S.
Because of this, Japan has only one option left—to raise its own interest rate. The market estimates the probability of a hike at the June 16 meeting at over 96%.
An important detail: the market reacts not on the day of the hike, but in advance. Major players exit their positions several days before the decision. That is why the most vulnerable assets—tech stocks and Bitcoin—were the first to fall.
Why did gold prices fall, then, since it’s supposed to be a safe-haven asset?
Because large funds manage their entire portfolio at once. To quickly reduce risk, they don’t sell unprofitable assets—they sell profitable ones, where the money is. In recent years, gold has been the most profitable and liquid asset. That’s why they sold it.
The conclusion is simple: at times like these, there is no such thing as a safe-haven asset. People aren’t selling what they want to sell, but what they can sell quickly. Everyone was watching the U.S.—but the key decision is being made in Tokyo.
We’re waiting for June 16.
Like these posts —🔥
On Friday, a strong U.S. jobs report was released—nearly double the forecast. Following the report, stocks, gold, silver, and Bitcoin all fell. The report served as a trigger, but not the cause. The cause lies in Japan.
For many years, investors have been borrowing cheap yen at near-zero interest rates and investing that money in income-generating assets around the world: tech stocks, artificial intelligence, gold, and Bitcoin. This is a carry trade. Therefore, the price of many assets is backed by total debt in yen—and when this scheme stops working, the assets fall together.
Three factors have now converged:
— expensive oil due to tensions surrounding Iran is increasing companies’ costs and reducing their profits;
— a weak yen, which Japan has been unable to prop up even by selling its dollars;
— a strong U.S. economic report, after which investors stopped expecting a rate cut in the U.S.
Because of this, Japan has only one option left—to raise its own interest rate. The market estimates the probability of a hike at the June 16 meeting at over 96%.
An important detail: the market reacts not on the day of the hike, but in advance. Major players exit their positions several days before the decision. That is why the most vulnerable assets—tech stocks and Bitcoin—were the first to fall.
Why did gold prices fall, then, since it’s supposed to be a safe-haven asset?
Because large funds manage their entire portfolio at once. To quickly reduce risk, they don’t sell unprofitable assets—they sell profitable ones, where the money is. In recent years, gold has been the most profitable and liquid asset. That’s why they sold it.
The conclusion is simple: at times like these, there is no such thing as a safe-haven asset. People aren’t selling what they want to sell, but what they can sell quickly. Everyone was watching the U.S.—but the key decision is being made in Tokyo.
We’re waiting for June 16.
Like these posts —
Please open Telegram to view this post
VIEW IN TELEGRAM