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Daily Fx Strategy

Yen rises across the board

Fri, Apr 11 2008, 13:26 GMT
by Ashraf Laidi

CMC Markets

Yen rises across the board as financial markets shift to defensive mode after General Electric reported a 6% decline in Q1 profits and lowered its 2008 guidance. The fact that the world’s 3rd largest company has disappointed on both actual earnings and projections is likely to reduce risk appetite for the day, thus, further boosting the low yielding yen and franc, at the expense of the higher yielding currencies. Losses may extend further as the start of the earnings season will likely usher in similar despondent reports from similar conglomerates We may also see broad a retreat in the dollar, rather than declines in the higher yielding Aussie, Kiwi and sterling as has become the case over the last few weeks.

While the notion of US dollar turning into a funding currency (low yielding instrument for carry trades) has been knocked around for the past 4 months, the materialization of such a phenomenon is being increasingly witnessed in global currency markets, as was the case throughout this week. This week’s record highs in the euro at 1.5912 may have occurred on the back of new record high in oil but the

The G7 meeting starting today into the weekend will be notably characterized by a wide menu of suggestions and recommendations on alleviating the unfolding losses in banks and containing the macroeconomic fallout from current market turbulence, but is unlikely to have any tangible impact on financial markets. Aside from the current crisis in credit markets and the unofficial recession in the US, the distinct aspect of this week’s G7 meeting is the apparent dissent between the IMF-under the new leadership of Dominique Strauss-Khan-and the US regarding the projected slowdown of the US economy and the solutions to combating the supporting troubled banks.

In currencies, there are very few novelties the G7 finance ministers and central bankers can introduce in the way of remarks besides the adopted mantra that excessive currency movements are undesirable. ECB president Trichet and his colleagues are expected to reiterate that importance of a strong dollar. The futility of this rhetorical policy has already been cemented beyond FX trading circles and its restatement will only pave the way for further dollar weakness in the medium term, as the Federal Reserve is forced to cut interest rates again this month by at least 25 bps.

Yen Posts Gains as Markets Fear GE

AUDJPY has already dropped by over 60 pips to 93.80 and is expected to extend losses towards 93.60 until encountering the 93.20 trend line support. Upside capped at 94.30.

Euro Eyes 1.5880s

EURGBP treats near its latest record high of 0.8030 and could extend potentially prolong its ascent towards the 0.8050s as the pound is expected to chart a prolonged decline into the rest of the quarter.

Sterling’s consolidation to slip lower

Published on  Fri, Apr 11 2008, 13:31 GMT

Archive

• CPI Softens Dollar Rebound, to Boost Risk Appetite
  Published On Wed, May 14 2008, 13:32 GMT
• Dollar Cheers Sales, Ignores Autos
  Published On Tue, May 13 2008, 13:41 GMT
• Sterling Deepens Gloom, Yen Gains on Risk Appetite
  Published On Fri, May 9 2008, 14:57 GMT
• USD Unable to Follow up, GBP Down Across the Board
  Published On Mon, May 5 2008, 14:58 GMT
• Why Optimism Remains Premature?
  Published On Mon, Apr 21 2008, 15:03 GMT

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