There was an article on this on Reuters in the last few days. After some investigation, I’m tending to believe that there may be something in this.
When markets tumbled into turmoil late last year, many hedge funds had no way of exiting certain positions or instruments they were trading. At times, the only really liquid market was the FX market and hedge funds started putting on proxy trades to hedge their portfolios. This mainly involved the selling of the JPY crosses as they had the best correlation with equity-related markets. Now that many markets are returning to a semblance of normality, these proxy trades are set to be unwound or in many cases are currently being unwound.
If this process gathers pace, we may be in for some very unexpected moves.
