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Forex pairs in this Article » USD/JPY (Bali) - The emerging markets sell-off sure does not come as a surprise as it was a dominant theme for most of H2 2013, however, after the overdone moves post China HSBC PMI. one wonders if the market is seeking a clean-out of long-held short specs positions in Yen currencies.

While it remains extremely tricky and quite risky bet for a higher Yen, the EM (emerging markets) sell-off has led to some severe turnaround in US stocks, but most surprising, is the decline in 10Y Treasury yields below 2.80%, adding pressure to the complex of Yen crosses.

According to John Noonan, Head of IFR Markets: "There is growing evidence that US investors are rotating out of equities into Treasuries and this is behind the surprising 10-year UST yield's fall below 2.80%. If UST yields keep falling (some tech analysts are looking for 2.50%) it will undermine the long USD/JPY positions that have been building since the end of 2012."

Should the resumption of bond buying in the US continue, the potential negative consequences for JPY crosses are evident, and Thursday might just be a warm-up of what is to come towards the preferred funded carry currency.

While one has the suspicion that the China HSBC PMI data reaction is out of proportion, especially knowing the disrupted number pre-Chinese new year period on early factory closures, perhaps such moves are an early warning sign of a much-needed reboot in FX trends.
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