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Climate of Fear Drives Yen Higher

Last updated 3/30/2009 5:20 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Equity Markets open lower on threat of possible GM bankruptcy -Wagoner steps down
• EZ Retail PMI bounces off the lows
• Banks lower on threat of GM bankruptcy
• OIl drops to $50/bbl
• Gold steady at $928/oz

Overnight Eco

• NZD Building Consents 11.6% vs. 13.0% previous
• AUD HIA New Home Sales 3.9% vs 8.6% last
• JPY Prelim Industrial Production worse at -9.4% vs.-9.1%
• EZ Retail PMI 44.1 vs. 42.3
• GBP Mortgage Approvals 38K vs. 34K
• GBP Net Lending to Individuals 1.3B
• EUR Consumer Confidence drops to 64.6 from 65.3

Event Risk on Tap

Price Action

• USD/JPY drops all the way to 9600 as risk aversion hits the market
• AUD/USD dips below 6800 before finding some support
• GBP/USD drips lower all night until bids materialize at 1.4100
• EUR/USD 1.3200 gives way on heavu EUR/JPY selling

The markets opened the week with a massive liquidation of risk as yen soared across the board with USD/JPY gaining 200+ points before finally finding some support at the 9600 level. News of the possibility of a GM bankruptcy hit the markets hard with Nikkei dropping -390 points for the day.  One key concern for investors, aside of from the natural economic fallout of the failed automaker is the impact of a potential GM bankruptcy on major money center banks. The teetering automaker carries $300 Billion worth of debt  and it is unclear as to how much of it will need to be written off should GM file for Chapter 11.  As a result European banks such as Deutsche Bank and Commerzbank were sold heavily at the start of Frankfurt trade.  

In addition to the GM worries, the markets were also skittish about the upcoming G-20 summit. As we wrote earlier, “With Europeans lead by Germany’s Angela Merkel refusing to commit to further fiscal stimulus, the prospects of an essentially empty G-20 meeting are likely to weigh on the currency market, as well.”

The economic calendar in Europe was relatively quiet, but the tier 2 data that printed provided a modicum of support for both the euro and  the pound. The EZ Retail PMI finally showed a glimpse of recovery registering a gain of 44.1 versus 42.3 the period past, but despite the upturn the German component continued to deteriorate slightly to 44.4 from 45.4.  Meanwhile in UK Mortgage approvals actually rose from 32K to 38K, hitting their highest level since May, but the data is far more indicative of stabilization rather than any meaningful pick-up in demand. Nevertheless, the news managed to blunt much of the one way selling that was taking place since the Asian open and both the EUR/USD and GBP/USD stabilized at 1.3200 and 1.4150 respectively.

Turning to the North American session the economic calendar is blank and much of the trade will be driven by further GM news flow and equity market reaction. If the climate of fear persists through the North American trade USD/JPY could once again return to  the 9600 handle while EUR/USD could break all the way to 1.3100 to test its longer term support.     

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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.