[cppene]

There have been many examples of what can happen when the price action in Cross/JPY moves to levels that trigger forced liquidation on long Japanese margin trading positions because these investors have not been able to provide sufficient margin to support the open position(s).

The most recent example was ZAR/JPY. As of the close on 30 October, net long positioning of ZAR/JPY was at the highest level on record. But the risk aversion driven selloff in ZAR/JPY on 2 November ran into the implied stops on these longs, exacerbating the selloff further than what would have otherwise been the case from ~11.50 to ~10.80 in a heartbeat. Subsequent positioning data confirm the forced liquidation of ZAR/JPY longs was the biggest one day selling on record.

Year to date, there have only been three occasions where such forced liquidation in AUD/JPY has occurred. Given where recent margin traders entered their long AUD/JPY positions, we estimate the first set of margin calls and/or liquidation levels are just under 80.00. Due to the heavily long skew of positioning, a break of this level would open up a swift selloff to 79.00/50, which we would consider an excellent opportunity to go long AUD/JPY for a test of 85.00 in coming weeks.