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Thirst For Risk Fuels Gains in USD/JPY

Last updated 4/2/2009 5:54 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• RIsk appetite returns as Asia and Euroep follow through on US rally
• G-20 meeting awaits communique
• ECB rate cut on tap
• OIl at $49/bbl
• Gold at $923/oz

Overnight Eco

• JPY Monetary Base 6.9% vs. 6.8%
• AUD Trade Balance 2.11B vs. 0.7B
• AUD ANZ Commodity Prices 0.9%
• GBP BOE Credit Conditions Survey
• GBP Construction PMI better at 30.9 vs. 27 expected
• EUR ECB Rate Decision n/a

Event Risk on Tap

• USD Unemployment Claims expected at 653K

Price Action

• USD/JPY soars to 9940 as equities rally
• AUD/USD runs above 7000 again as risk returns
• GBP/USD taks out 1.4600 as EUR/GBP declines
• EUR/USD held in check at 1.3300 ahead of the ECB

Buoyant equity markets reignited risk appetite in currencies tonight as both Asia and Europe extended the gains made yesterday in DJIA on the back of better than expected ISM Manufacturing numbers. The iSM report showed a small measure of improvement across most of its components fueling a rally in stocks on the belief that US demand may have finally stabilized.  

Risk currencies were also lifted by positive sentiment from the G-20 meeting where initial discord appears to be giving way to some sort of a unified statement of purpose that could provide further support to equities. USD/JPY soared to a high of 99.80 on carry trade demand in AUD/JPY and NZD/JPY and AUD/USD once again broke above 7000 helped by much better Trade Balance data.  Even in UK the moribund housing sector showed signs of life with Nationwide house prices rising for the first time in 12 months while PMI Construction data rebounded from the prior months lows of 27 to register a 30.9 reading.

The  rally in euro on the other hand was much more subdued with the unit capped at the 1.3300 barrier for most of the night ahead of the ECB rate decision. As we noted in our report yesterday, “as traders await the ECB decision the preponderance of evidence suggests that the euro may come under further pressure should ECB entertain the idea of quantitative easing or additional reductions in overnight rates or even a some form of currency intervention in Eastern European markets. Given the severe deterioration in EZ labor market s, the ECB may not be able to avoid any of these unpleasant choices leaving the euro vulnerable to more downside pressure.”

In North America today, the only data point of note is the weekly jobless claims report. The news will be important insofar as today’s data not exceed the cycle high of 667K claims.  Were that to happen it would suggest that the peak point of contraction the US economy may have passed. Unemployment claims are a much better forward  indicator of demand than the unemployment data itself as companies  will first stop firing personnel before they expand headcount.  The trade in FX therefore will likely be driven by equity flows which in turn could take their cue from any developments at G-20. Meanwhile the euro story will be dominated by comments from Mr. Trichet with key focus resting on whether the ECB will begin making asset purchases as part of its monetary policy.

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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.