Risk Rolls On as USD/JPY Hits 101.45

Last updated 4/6/2009 5:08 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• UN fails to agree on action on N Korea rocket launch
• Asian equities ignore N Korea extend rally at the start of the week
• European Retail Sales sink -0.6%
• OIl at $53/bbl
• Gold retreates fruther below $900/oz - $897/oz last

Overnight Eco

• AUD MI Inflation Gauge -0.1% vs 0.7% last
• JPY Leading Indicators 75.2% vs. 75.3% eyed
• EUR Sentix Investor Confidence -35.3 vs. -40.7 eyed
• EUR Retail Sales -0.6% vs. -0.3% forecast
• EUR PPI -0.5%

Event Risk on Tap

• CAD Building Permits expected at -2.7%
• CAD Ivey PMI expected at 45.4

Price Action

• USD/JPY take sout 101.00 as demand for risk continues
• AUD/USD much more muted at 7160 in light of fears that RBA will cut tommorow
• GBP/USD hits a 2 month high as it runs through 1.4900
• EUR/USD held in check at 1.3550 for most of the night

Demand for risk continued unabated at the start of the week’s trade today with USD/JPY taking out the 101.00 figure in morning European session as Asian and European equity markets remained firmly in the green. Investors ignored the geo-political; threats from the North Korean rocket launch that fizzled into the Pacific focused instead on the growing theme of stabilization in the global economy.

In our pre-NFP analysis on Friday we noted that “the market appears to be well prepared for -700K print and is therefore unlikely to react severely to any number close to that parameter. Only a truly shocking reading of -800K or worse could shake up the equity and currency markets with risk aversion once again making a comeback.” With NFP coming at -663K, “the-bottom-is-in” trade continues to dominate both equity and currency markets as high beta pairs continue to perform well while the yen is sold without mercy.

USD/JPY Hits A 6 Month High

It remains to be seen whether this is a true bottom or simply a temporary pause in a much more vicious cycle of contraction. We have our doubts as to the former and tend to think that the later may be the more accurate scenario. Certainly the rally in equities and yen crosses is getting long in the tooth and this week the equity market may have to face yet another headwind as Q1 earnings begin to hit the tape. If the numbers do prove disappointing the rally in USD/JPY and the high yielders could come to an unceremonious end.

On the other hand, if the earnings data shows surprising resilience it may embolden the bulls to press harder, pushing GBP/USD through 1.5000 EUR/USD through 1.3700 and USD/JPY through 102.00. Nevertheless, the risk trade is due for a pause. USD/JPY faces very stiff resistance at 102.50 while EUR/USD has to overcome a big zone of congestion at the 1.3750 level.

The recent rally in both equities and currencies has been fueled more by faith than fact. With the sharp rebound from the early March lows equities have corrected much of the oversold condition, but it is difficult to imagine how the four week rally could maintain this type of pace against the current fundamental backdrop. Therefore as the week progresses equities are likely to correct taking risk currencies down with them. While it may be a tad too soon to fade the moves in yen crosses and the high beta pairs, it is quite likely too late to join the rally party.

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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.