12 JUNE 2013: USD/JPY REBOUNDS AFTER STEEP FALL

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The Dollar steadied against the Yen on Wednesday, suffering its biggest drop in three years yesterday. USD/JPY trades at 96.44, sinking as low as 95.60 in the previous session. The 2.7 % fall marked the biggest one-day drop in the USD/JPY currency since May 2010. The Dollar continued to slip against the Euro at 1.3307. The Dollar index DXY steadied after slumping to a four-month low of 81.034. The weakened Australian Dollar gained 0.4% and trades 0.9469 to a USD.

Bank of Japan (BOJ) disappointed investors hoping for an extension in the maximum duration of its fixed-rate loans, similar to the European Central Bank (ECB) long term financing operation. Such extension would have been aimed at quelling the volatility in the bond market. The market expected such a move. When that did not happen, the Yen sellers had to liquidate short positions. Yen buying was strengthened by exporters shrinking purchases of the Dollar.

The volatility and tumult in the Japanese bond market have raised worries that it could undercut the Abe government and BOJ’s efforts of monetary easing. USD/JPY had, until the recent turnaround, fallen continuously from 80 to 103.65 Yen to a Dollar. The weaker Yen gave Japanese export a welcomed boost, but most of this advantage has been eaten by the stronger Yen experienced in June.

The US and European stock markets tumbled yesterday on nervousness over FED’s monetary easing exit strategy. Dow Jones and Nasdaq fell from 0.76 to 1.06 %. At the General Assembly of Facebook, CEO, Mark Zuckerberg, faced a barrage of questions about the stock price. Facebook’s shares have fallen 37% since its introduction. In Japan, the Nikkei index fell below 13.000 as the strong Yen dragged exporters down.

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24 MAY 2013: SERIOUS MELTDOWN IN GLOBAL EQUITIES

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Dubious signals from the US Federal Reserve, FED, on continued monetary easing, and disappointing Chinese PMI numbers (a barometer on business leaders optimism), led to a serious meltdown in global equity markets yesterday. The Japanese Nikkei plunged 7,32 % with more modest losses in Europe, where London and Frankfurt indexes lost 2 %.

While FED’s Ben Bernanke testimony to Congress, warned against a premature end to the bond buying program, FED’s April minutes pointed to a split between those who want a quick termination of the program and those siding with Bernanke. Monetary easing has been the driving force behind the last months steep increases in equities.

It is natural to see the steep plunge in Japan as a result of a doubling in stock prices over the last half year and the latest aggressive stimulus policies. Globally, there have been increased worries among investors as to whether equity markets, running ahead of fundamentals, are creating a dangerous bubble. With news of an end to monetary easing and problems in China this created risk aversion and a sell off.

The fall in the US-indexes were modest following the onslaught in other markets. The last published jobless claims at 340,000, are 5000 fewer than expected. There is still a long shot to the 6,5 % unemployment target set by FED, but fewer jobless claims would give the proponents of an early end to the bond buying programs new arguments.

Oil prices which have kept surprisingly steady over the last month, decreased more than two dollars a barrel.

EUR/USD got support from higher than expected PMI indexes. As a result, EUR/USD from level of opening – 1,2855 was rolled away to a maximum of 1,2956 and this morning we can see pair traded on a level of 1.2932. GBP/USD behaved more frostily against volatility of both currency pairs and share indexes. Having reached quite strong support on 1,50 the previous trading day, pair showed moderate correction. The most important question of today is- whether the Yen finished it’s decline? Taking into consideration all the factors, pair can quite roll down to the area of 100.00.
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10 MAY 2013: YEN BREAKS THROUGH 100

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After flirting with the 100 yen to a dollar mark for weeks USD finally smashed through this psychological important hurdle indicating further weakness in the Japanese yen. USD/JPY traded as low as 101.20 early Friday, down two percent from Thursday’s 98,75, the lowest level seen in four and a half years. The record low represents a victory for Prime Minister Shinzo Abe’s “Abenomics” and his deliberate efforts to weaken the yen and strengthen economic growth through monetary easing.

In an effort to counter the weaker yen and boost its own competitiveness both Australia and South Korea have during this week cut their interest rates, sparking what seems as a currency war among Asian trading partners. Both countries cited their strong currencies as one of the reasons for their 0,5% cuts. A South Korean finance ministry official said Friday that Seoul was worried about the pace of the yen’s decline. The yen has depreciated 25% since the decline started in October/November.

Japan economy minister Akira Amari reiterated as Japan did during the recent G-20 meeting, that Tokyo has no intention to manipulate currency levels. Analysts expect a further fall in yen as dollar/yen finally have gotten over the psychological hurdle of 100. A continued downward pressure on the currency was underscored by data published on Friday showing that Japanese investors finally have reversed their relentless selling of foreign bonds. Japanese investors have over the last 12 weeks been net sellers of foreign bonds.

The Nikkei index soared to a four and half year high, up 6,5% only this week. The US dollar was buoyed by new strong jobless claims. The last weekly report published yesterday confirm the stronger than expected monthly nonfarm payrolls for April when jobless claims fell to its lowest level in five years. Signs of a steady US recovery has already could fuel speculation that the Federal Reserve (FED) might scale back its aggressive quantitative easing.

After reaching 99,95 in early April the USD has stalled one month against the yen. EURO/JPY simultaneously rose to 131,91, its highest since January 2010. There is no major changes in oil prices, copper and other commodities. Gold fell back from its high on USD 1474 and has recovered to 1462 in early Asian trading.

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09 MAY 2013: STOCKS RALLY AS MAJOR CURRENCIES LOSE DIRECTION

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Global equity markets continue to rally as major currencies have lost a clear direction. Encouraging global data and Wall Street’s extended record rally, took Asian shares to a new two-year peak Thursday morning. Australia presented strong unemployment numbers. While 50 100 new jobs were added in April, the South Korean central bank made a surprise 0,5% interest cut lowering the interest rate to 2,5%. These steps further cemented the positive mood in global markets.

Lower interest rates and central banks increased money printing have created spare liquidity which moves into stocks. The Japanese monetary easing brought the Nikkei index within striking distance of a five-years highs outperforming its global peers. Stocks remain the favored asset class among investors as monetary easing depresses return on bonds. Unclear prospects regarding the world economic growth weigh negatively on commodity prices. Commodities trade without any clear direction with precious metals temporarily falling out of favor with investors.

In contrast to the clear uptrend in global equities major currencies have lost direction. This is the case with Japanese yen, JPY, which depreciated continuously since November last year and depreciated and lost 20 – 25% against most currencies. The last weeks USD/JPY has traded in the interval between 97 – 99 yen a dollar unable to make a major breakthrough and jump above the psychological 100 level.

Investors which made huge profits betting on big cash currency positions earlier this year go into equities which regardless of economic fundamental outlooks are strongly buoyed by monetary easing. As long as central banks keep their accommodative stance the uptrend in stocks would continue. Stocks were also helped by the upbeat US unemployment figures last Friday, Chinese trading data and more promising prospects for the German industry.

In spite of the economic outlook for the Euro zone continues to be dismal, the Euro remains resilient. Euro/USD trades at 1.3160. The economic problems in Europe are indeed serious, but traders have recently burnt their fingers on going short on Euro and stay away. The Euro seems to have discounted eventual bad news, and the balance of payment and real interest rates are no lower than anywhere else. There is no clear conviction among traders as to the timing of Euro weakness. In this financial climate oil prices are keeping up steady. Brent is hovering around USD 104 a barrel. Gold price which fell to USD 1449 on Tuesday, has picked up and trades at 1474.

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