Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Unwinding of Carry Trade Sees Rising Yen and Falling Stock Markets

Currencies / Yen Carry Trade Dec 04, 2007 - 03:21 PM GMT

By: Ashraf_Laidi

Currencies Yen rises across the board as risk appetite takes a fresh hit following the latest evidence of the sub-prime mortgage spillover on the market and broader economy. JP Morgan Chase's downgraded the earnings of four of its competitors on the basis of lower higher write downs and lower M&A revenue. Meanwhile, downgraded and defaulted debt has reached towards state-run pension pools in Connecticut , Montana and Florida , with the latter owning more than $1 billion of downgraded paper.


Yesterday we made the fundamental case for a temporary rebound in the US dollar occurring on the heels of repositioning out of net dollar short positions, which initially favored EUR, GBP, AUD, NZD and CAD. The technical case for a temporary dollar rebound is seen in the following charts of Aussie and gold. USDJPY remains the exception to the dollar rebound story as the currency is anticipated to post fresh gains on the heels of prolonged equity market volatility.

Failure in S&P Technicals Pave Way for Fresh Downside

Last week's rebound in the S&P500 was as visible as its failure to break above the key 200-day moving average of 1485. The resounding sign of prolonged bearishness (as applicable to any technical chart) is seen not only through 3 consecutive weeks of trading below the 200-day MA, but two failed attempts to close above the 200 day MA . Fundamentally, the bear case for US equities further validated by the fact that last week's rally was largely a result of one-off factors, namely: Abu Dhabi Investment Authority's $7.5 bln purchase of 5% in Citigroup and increased indications by the Federal Reserve officials that a rate cut may be needed at the December 11 meeting.

Shaky Aussie Technicals in Line with Uncertain Equities

The Australian dollar may have been supported by a hawkish central bank raising interest rates last month and paving the way for further tightening. But the overnight figures on retail sales suggest the Reserve Bank of Australia may have to remain on hold for at least 2 months in order to assess whether the 50-bp tightening of the past 2 months combined with the strong currency is beginning to spillover to the economy. Australia 's retail sales rose 0.2% in October from September's 0.7% increase, undershooting estimates of a 0.6% increase. The report dragged the Aussie by more than half a cent to 0.8730.

We mentioned in yesterday's video commentary the developing head-and-shoulder formation in the AUDUSD, which is a common bearish reversal pattern. This suggests the pair could prolong weakness towards 0.8730, followed by 0.8670. A breach below the 0.8650 neckline is expected to extend losses towards the 200-day MA of 0.8570.

USDJPY capped at 110.80

We mentioned in yesterday's note that USDJPY was capped at 110.80 and retreat towards 110. Today's decline towards the 109.60 low may be expected to see follow up moves towards 109.25. Subsequent target stands at 108.30. The main risk to this move is a far stronger than expected non-farm payrolls release this Friday (above 110-120K). A 50-bp rate cut from the Fed next week would also likely boost the pair higher on the basis of an unexpected jolt of risk appetite weighing on the lowe yielding yen.

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in