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FX: Waiting on 3 Announcements, Keep an Eye on USD/JPY

Last updated 11/8/2011 9:21 AM ET (GMT -5) 1 Comments

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Kathy Lien

Director of Currency Research, GFT

European currencies are trading higher this morning against the greenback but the comm dollars have weakened as investors sit at the edge of their seats waiting for the latest headlines out of Europe.  In just a few hours, if not sooner, we will learn whether Berlusconi retains a majority in Parliament, who the new interim Greek leader will be and how European finance ministers plan to recapitalize the banking sector. We already know that Berlusconi will not leave quietly and losing the vote today does not guarantee his departure.  In fact, the drama in Italy will continue regardless of the outcome of today's vote because Berlusconi is a seasoned pro at fighting calls for his resignation.  The rally in the euro, the rise in equities and the decline in the Italian 10 year bond suggests that investors are looking for a positive outcome to today's event risks.  However the only positive outcome that we could imagine is the final departure of Papanderou and the European bank recapitalization plan but even these two announcements may not be enough to overshadow the risks in Italy.  Nonetheless, the strength of the euro highlights the market's desire to look past Europe's sovereign debt troubles. 

Meanwhile currency traders should keep an eye on USD/JPY which has broken its 5 day low.  If USD/JPY breaks below 77.50, we could see the Bank of Japan come back into the markets to buy dollars and sell yen.  The Japanese government has committed to doing all that it takes to stop the Yen from strengthening and for the past week, they have been successful.  However, the jitteriness in the market has driven investors back into the arms of the low yielding Yen, which has traded higher against all of the major currencies.  Fighting Yen strength has always been an uphill battle for the Japanese government but this time their firepower is a lot higher with their intervention war chest is at its largest level ever. 

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Comments (1)

Darkdoji

November 08, 2011 at 11:05 AM ET

"Nonetheless, the strength of the euro highlights the market's desire to look past Europe's sovereign debt troubles". I would be suspicious of "strength" in a flat market. I cannot claim to know the "markets" as the author does - but what are we looking at in the Euro beyond today or the week? 1) debtors that are essentially insolvent (as opposed to debtors that have liquidity issues and therefore might benefit from short-term loans) 2) an economy that has indicated a clear inclination to contract in the coming days and weeks and months 3) a central bank that is not allowed to act as one 3) a union designed to colonize the weaker states, etc. Too many structural issues (social, economic and political) and near term too. It would be a miracle to still have the Euro around in a couple of years.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.