Daily Forex Snapshots

Asian Session - Japan's Weak Trade Balance Tells a Story, where goes the carry trade?

October 23, 2008 10:02 AM CEST

G10 Advancers and Decliners vs USD

	JPY	0.81
	NZD	0.27
	GBP	-0.02
	DKK	-0.38
	EUR	-0.48
	SEK	-0.52
	CHF	-0.57
	CAD	-0.65
	NOK	-0.67
	AUD	-0.77

Global Indexes

Current Level

% Change

Nikkei 225 Index	8,460.98	- 2.46
Hang Seng Index	13,776.53	- 3.43
Shanghai Index	1,878.73	- 0.90
FTSE 100 Index	4,013.00	- 0.15
DAX Index	3,286.00	- 0.28
SMI Index	5,946.00	- 0.03
DJIA futures	8,680.00	+ 1.43

World Markets

Current Level

% Change

Gold	734.23	+ 0.58
Silver	9.64	+ 0.94
VIX	69.65	+ 31.14
Crude wti	67.55	+ 1.19
USD Index	85.58	+ 0.25

Todays Calender

Estimates

Country / GMT

Retail Sales (Sep)	-0.7%,+2.0	1.2%,+3.3%	UK / 8.30
BBA Mortgage Lending (Sep)	--	21,086	UK / 8.30
Industrial New Orders (Aug)	0.5%,-0.1%	1.0%,+1.6%	EZ / 9.00
Initial Jobless Claims (Oct 18th)	465k	461k	US / 12.30
OFHEO House Price Index (Aug)	-0.5%	-0.6%	US / 14.00

Currency Tech

AUDUSD
R 3: 0.7355
R 2: 0.7239
R 1: 0.7076
CURRENT: 0.6717
S 1: 0.6540
S 2: 0.6496
S 3: 0.6331

EURJPY
R 3: 138.57
R 2: 136.39
R 1: 131.48
CURRENT: 125.72
S 1: 123.00
S 2: 122.88
S 3: 121.34

USDSGD
R 3: 1.5189
R 2: 1.5086
R 1: 1.5057
CURRENT: 1.5017
S 1: 1.4732
S 2: 1.4667
S 3: 1.4551

Market Brief

Asian Session - Japan's Weak Trade Balance Tells a Story, where goes the carry trade?

The USD was slightly stronger in Asian Session as deleveraging and risk aversion continued to be the driving themes. EURUSD bounced around the 1.2876 to 1.2728 levels while USDJPY traded down to 96.87 before retracing to 98.62. Wall Street had another down day with S&P closing -6.10% and Asian regional indexes are following the downwards trend with the Hang Seng -6.10%. Crude oil & gold tick upwards but lack any real momentum while VIX rallied back above 69. We are seeing a clear shift to concern over the global economic growth prospects and any economic indicators will have an amplified reaction.

There is a continued unwinding of carry trades of these past two years – which consisted of shorting the low-yielding USD, CHF and JPY – long emerging markets. Furthermore, the repatriation of funds is the major theme here as the rapid reversal of Yen carry trades was the cause of the extreme moves in major exchange rates in 1998 – this, along with risk aversion explains why the Dollar was up against all currencies yesterday except the yen – further unwinding to come, regardless of the impressive moves of the past two days – fair value for the majors sits at 1.20 for EURUSD, 1.55 for GBPUSD and 90 – 95 for USDJPY. The RBNZ cut rates by 100bp to 6.5% this morning, which the market had already priced in – following what the RBA had done earlier this month. The bank expressed concern over the “On going financial market turmoil and deteriorating outlook for global growth”.

The outlook for the session ahead will see further moves as the dollar continues to be the safe-haven bet of the moment. The age old maxim of “cash is king” really shows it’s worth now, as repatriation of funds shows the uneasiness that reigns in the markets – investors preferring to hold back before markets calm and we find some form of normalcy.

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