Yesterday’s market was quite the roller-coaster ride as it appears to be a headline-driven market and one that relies less on the fundamentals. Various comments form around the globe regarding the Japanese nuclear crisis have sent both fear and hope rippling through the marketplace.
Ill-advised comments from an EU nuclear expert regarding the state of the situation sent markets tumbling yesterday, only to rebound somewhat when the comments were clarified. However, the pent of fear in the market was waiting to burst and this occurred yesterday afternoon when Japan opened for trading.
We are only going to look at one chart today, that of USD/JPY and the carnage that took place as the Yen strengthened mightily vs. the Dollar and other currencies, reaching post-WWII highs. In fact, my charts don’t go back that far. (Click chart to enlarge)
The Yen re-patriation trade and the un-wind of carry trades has essentially re-priced risk in the marketplace, and fear that the nuclear crisis is getting worse and not better is preparing the global economy for the worst. In fact, the US has issued its own travel advisory to ex-pats abroad, essentially telling them to leave the country.
The 80 level on USD/JPY was essentially support and when that was broken it triggered all kinds of stop losses plus momentum-driven sell programs which created trading action that was wild to say the least. Now the market is focused on this nuclear crisis and the global economic ramifications and threats it poses to stability.
This is clearly the dominant theme in the marketplace, and shall remain to be until more clarity emerges. The markets have rebounded somewhat this morning, with equities and commodities trading higher.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning as it has rebounded some from yesterday’s sell-off, though it is still trading lower against the Yen. No further news due this week for the Aussie.
Kiwi (NZD): The Kiwi is lower across the board despite the pop higher in commodities prices as Consumer Confidence figures tumbled to a reading of 97.9 from last month’s reading of 108.3.
Loonie (CAD): The Loonie is higher this morning as commodities prices especially oil have rebounded ahead of tomorrow’s release of the CPI data. Now Canada does not use the same metrics as the US (essentially stripping out everything that is a necessity) so we may get a more realistic reading of inflation.
Euro (EUR): There is little news out of the Euro zone this morning but Switzerland left their rates unchanged which has weakened the Franc (CHF) despite the inflation they have been seeing. Safe haven money flows to the CHF have pushed it to all-time highs. The Euro is also trading above former resistance vs. USD at 1.40, and PPI figures are due out tomorrow.
Pound (GBP): The Pound is also higher on Dollar weakness as there is no significant news left for the UK this week.
Dollar (USD): The underlying weakness to the Dollar is telling despite the risk in the markets. While QE2 keeps pressure on the greenback, and decent economic data this morning points to a slow and protracted recovery, risk is still very heightened. CPI data came in slightly higher than expected, and initial jobless claims were slightly better than expected, showing that only 385K lost jobs last week.
Yen (JPY): Wow is all I can say about the Yen. I haven’t seen action like that for some time. The BOJ keeps pumping liquidity into the system yet the Yen is not weakening. The obvious news is the nuclear crisis, and let’s all pray for the best.
With headline risk ruling the markets, it is hard to initiate longer-term positions as sentiment changes from one hour to the next. As I mentioned yesterday, it is very tough trying to get a handle on what’s going on across the globe.
Today is St. Patrick’s Day so perhaps the “luck of the Irish” is needed to make it through this situation with as little negative impact as possible. All eyes are obviously on Japan, with the hope that this nuclear crisis can be contained. For the safety of the Japanese people, and for the health of the global economy. So be nimble in the markets, as rapidly changing events can be the difference between gains and losses.
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