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Daily FX Report

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Japan's Nikkei Stock falls over 5% to a 5−year low under 10,000

Tue, Oct 7 2008, 09:23 GMT
by Varengold Bank Research Team

Varengold Wertpapierhandelsbank AG

Good morning from wonderful Hamburg. In spite of efforts by central banks and governments the most of stocks and indices close the day with a sharp decrease. The market seems to need time to rebound the record losses. However we hope for better developments in the financial market and wish you good luck in trading.

Market review

On fears of global financial crisis, Japan’s Nikkei Stock falls over 5% to a 5-year low under 10,000 while the USD/JPY dips near a 6-month low on Monday that hurt exporters, whose earnings have been badly undercut by the worsening economy overseas. The USD and EUR jumped to session highs against the JPY. The USD/JPY rose as much as 0.8% from late US trade to a peak of 102.62, recovered sharply from the sharp low of 100.22 on Monday. The EUR/JPY is up 0.8% to 138.60, rebounded from a 3-year low and is likely to drop further once Japanese exporters start to sell it aggressively, traders say. There are some speculations about a rate cut by the BOJ to spur bank lending. It may signal whether it sees a need for further major central bank action on the global financial crisis. There are also expectations that G7 rich nations would agree on a coordinated response, including rate cuts. The BOJ ends its 2-day policy review today and is expected to keep rates on hold at 0.5%, with core inflation at a decade high.

The RBA cuts interest rates by an aggressive 100 basis points to 6.0% with a 50-bp forecast. The AUD/USD is up to 0.7255 from a low of 0.700. The RBA says the large 100-bp rate cut was designed to bring about a significant reduction in credit costs but will not be the pattern for the future rate decisions. The bank adds the deterioration in global growth is expected and financial markets posed risks to domestic demand and output.

AUD/JPY

Since the end of July the AUD/JPY has been trading in a downward trend channel. After the break through the upper trend line and a touch with the 90 resistance level, the market broke the 81 support level with a strong bearish day-candle stick. This might be a sign for further downward trend movements.

CHF/JPY

A similar movement shows the CHF/JPY. After the break through the upper trend line and touching the 98.58 resistance level the market has shown a comeback to the bearish trend channel. This could be a signal for further short potential.

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Published on  Tue, Oct 7 2008, 09:34 GMT