Dollar Yen Drops Through 90 As US Senate Rejects Auto Rescue

Last updated 12/12/2008 5:29 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• US Senate fails to pass auto bailout sending Asian stocks -4% lower
• Yen touches 88.15 on risk aversion
• EU may hammer out an agreement on climate change and stimulus plan of 1.5% of GDP
• European equities follow Asia to the downside
• Gold stalls at $80 but hoilds $800 $813 last
• Oil at $46 last

Overnight Eco

• NZD Retail Sales 0.8% as expected
• JPY Revised Industrial Production -3.1% as expected
• JPY Household Confidence 28.4 bit better than 28 forecast
• EUR Industrial Production -1.2% worse than -1.0% forecast

Event Risk on Tap

• CAD Capacity Utilization Rate expected at 78.3%
• CAD New Motor Vehicle Sales expected at -0.5%
• USD Retail Sales expected at -1.7%
• USD PPI expected at -2.0%
• USD Consumer Sentiment expected at 55.0
• USD Business Inventories expected at -0.3%

Price Action

• USD/JPY hits a low of 88.15 in the wake of bailout failure but rebounds above 90 in Euroepan trade
• AUD/USD hurt badly by risk aversion and commodity collpase slipping back to the 6500 handle
• GBP/USD slips below 1.4900 on further EURGBP strength but recovers in early London trade
• EUR/USD drops below 1.3300 but also finds a bid as European traders reverse Asia losses

USD/JPY hit a 13 year low in Asian session trade today touching 88.15 after the US Senate failed to agree on a bailout package for the Big Three automakers. The news sent a wave of risk aversion flowing through the Asian equity markets as Nikkei tumbled more than 4%. Meanwhile the commdollars were the biggest victims of the news in the currency market with Aussie and loonie plunging more than 200 points from yesterday’s close.

The specter of bankruptcy in the US automobile industry raised fears amongst global investors of further decline in commodity demand and if the Big Three do indeed follow the path towards liquidation or consolidation the pressure on commdollars is likely to mount. At this point it is far from clear what the outcome for the Detroit saga will be, but the growing uncertainty is sure to fuel further bouts of risk aversion, especially if the markets do not receive any additional updates from US officials during the North American session.

Therefore, despite the bounce off the lows, we expect yen to remain bid especially if it becomes increasing obvious to traders that the US automakers are heading for bankruptcy protection putting their massive debt obligations at risk to their many creditors. Another massive collapse in the credit crunch crisis would hardly be helpful to global capital markets, but for the moment policymakers appear to be unable to prevent this slow motion car wreck from imploding.

The pressure on US equities is likely to be compounded by the release of US Retail Sales figures which could disappoint to the downside given the horrid unemployment data form yesterday. Thus, unless the markets hear some soothing news in North American session, risk aversion is likely to intensify and USD/JPY 90 level could be tested once again as US traders get ready for the last working day of the week.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.