Another strong day for the yen today, up against all of the currency pairs commonly followed. Its particularly strong against GBP (+2.07), as I’ve noted over the last couple days the problems facing the Sterling. So while GBP and USD get all of the attention with their QE (quantitative easing) programs, the Yen just quietly chugs along.
A few factors helping the yen:
1) Speculation that Japanes companies (exporters) are repatriating their funds (profits). This is a seasonal factor that is supporting the yen right now.
2) From Bloomberg: “Japan’s Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign-exchange markets to curb the yen’s gains yesterday. The yen has added 3 percent versus the dollar this month.” One of the biggest fears of yen traders is BOJ intervention, so this bodes well for the yen… for now.
3) The yen is being replaced in the “carry trade” as traders are now substituting USD as the vehicle of choice.
Overall, Japan hasn’t been affected as badly as the US and UK in the credit crisis, so look for JPY to benefit from the safe harbor trade.
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Sometimes in trading you just have to stick with your initial “gut” feeling. Yesterday I wrote in an article below, “Sound As A Pound…. For Now” that I thought the long-term outlook for GBP was negative but that it would probably take a while for the market to catch on before the serious selling would begin.
Apparently not. And I highly doubt its because the market reads this blog, though one never knows! LOL
Anyway, GBP is getting slaughtered this morning, with GBP/JPY (-2.30%), GBP/USD (-1.92%), EUR/GBP (+1.64%), and GBP/CHF (-1.73%).
While I initially thought that GBP would remain positive vs. USD, it appears that they may be playing “catch-up” or “catch down” as it were to USD in the Quantitative easing department.
Any way you slice it, it looks like the GBP selling has begun and it could be a while for it to recover.
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It looks like the FED did as was expected and the market was kind enough to follow suit, by selling the dollar and buying up other currencies. But see what I mean about the volatility! Take a look at this 5-minute chart of EUR/USD. (click chart to enlarge) Over 60 pips in less than a few minutes!
Hopefully readers you took my advice and sold USD bought other currencies, or steered clear of the mayhem all together!
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Just a head’s up for the day-traders out there, whom I’m sure are thoroughly familiar with the price action that occurs right around the rate decision. I usually advise that the less-experienced traders sit this event out as the increased volatility can spook even the most seasoned vets.
As I wrote on Monday, its not like that Bernanke will change anything with regard to interest rates or language going forward, but that doesn’t mean that the currency market HAS to respond as expected. Stranger things have happened. The dollar is currently positive vs. all currencies except the GBP, but that could change very rapidly if this announcement goes as expected.
This is always a great time to view the market from the safe confines of your practice account. This will give you a great idea of how much money can be made or lost during these events.
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Good trading to all!
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