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The Currency Futures Report

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Yen 'Lower' As Carry−Traders Buy Higher Yields

Mon, Jul 21 2008, 15:31 GMT
by Bob Kozak

Alaron

Japanese Yen (JYU8):

The JY opened lower at .9502 as 'carry-traders' followed equtiy traders, taking on more risk and buying higher yields by borrowing the 'cheap' JY. Prices did bounce to .9513, before retacing to a morning Lo of .9473 ahead of a higher open for the equity markets. Prices recovered to a morning Hi of .9514, before higher equity prices saw carry-traders taking on more risk and pressuring the JY to a daily Lo of .9367, before bouncing to a close of .9403, down 158 tics. The close below the 9-day MA changes the s/t trend to 'negative' w/ neutral momentum indicators. A lower open may find Support at .9321 and .9239, while an open above .9449 should find Resistance at .9531 and .9659.

Dollar Index (DXU8):

The DX opened lower at 72.27 and slid to 72.18, before bouncing to 72.40 as equity markets move higher and oil prices lower. Prices dipped to 72.09 and bounced into the start of afternoon trading at 72.21. Lower oil prices and higher equity prices helped the DX to a daily Hi of 72.675, before sliding to a close of 72.495, up 16 tics. The s/t trend remains 'negative' w/ improving momentum indicators. Fed Funds futures traders increased the likelihood of a 25bp rate hike at the Oct. 28,-29 FOMC meeting to 74% vs. 52% Wednesday. With financials lending support to the market and oil prices lower, the temporary move could carry the DX higher. A higher open should find Resistance at 72.75 and 73.005, while an open below 72.42 may find Support at 72.165 and 71.835.

British Pound (BPU8):

The BP opened higher at 1.9948 and slid to 1.9903, before rebounding to 1.9986 as the DX trailed lower and oil prices higher. As oil prices reversed on the NG build, the DX rallied, sending the BP to a daily Lo of 1.9862, before bouncing into the close of 1.9903, up 4 tics. The s/t trend remains 'positive' w/ firm momentum indicators. Higher inflation vs. slowing economy. Caught between a 'rock' and a 'hard place'. BoE will likely keep rates unchanged and try to contain inflation and hope oil prices and wages retrace. A lower open may find Support at 1.9848 and 1.9793, while an open above 1.9917 should find Resistance at 1.9972 and 2.0041.

Canadian Dollar (CDU8):

The CD opened 'flat'and slid to .9965, before rebounding to a morning Hi of 1.0014 along with oil/metals prices. The CD retraced to our Pivot level of .9970 as we enter the afternoon session. As energy and metals prices retraced and the DX rose, the CD retraced to a daily Lo of .9911, before bouncing to a close at .9927, down 51 tics. The s/t trend remains 'positive' w/ turning momentum indicators. Traders will key on the DX for direction and look for oil and metals to 'buffer' prices. A lower open may find Support at .9887 and .9848, while an open above .9951 should find Resistance at .9990 and 1.0054.

Euro Currency (ECU8):

The EC opened higher at 1.5813 and retraced to a morning Lo of 1.5767, before rebounding to a morning Hi of 1.5846. Prices drifted to 1.5812 as we enter the start of afternoon trading. A DX afternoon rally on lower oil prices sent the EC to a daily Lo of 1.5735, before bouncing to a close of 1.5770, up 11 tics. The s/t trend remains 'positive' w/ neutral momentum indicators. The ECB will try to 'jawbone' rates higher to combat inflation, but the drag on exports could weigh on prices. Traders will key on the DX for direction. Longs should tighten 'stops' or buy 'puts' to reduce exposure. A lower open may find Support at 1.5721 and 1.5673, while an open above 1.5784 should find Resistance at 1.5832 and 1.5895.

Published on  Mon, Jul 21 2008, 15:32 GMT