Traders are buying the September Japanese Yen this morning as protection against a bankruptcy filing by U.S. commercial lender CIT. Investors have been lightening up their demand for higher yielding assets after CIT Group announced it probably won’t receive a federal bailout.
A better than expected earnings report from JP Morgan early this morning triggered a turnaround in the stock index futures. Asian and European markets had been down for most of the night as traders lightened up their positions in higher yielding assets. As stocks firmed this morning on the JP Morgan news, the Japanese Yen showed signs of topping.
The early morning trade suggests that today may be a choppy, two-sided trade in the September Japanese Yen as a clash of fundamentals is leading traders to take different views of the market. One camp is looking for a CIT bankruptcy to trigger a break in equities which should lead to safe-haven buying in the Yen. Other traders are saying the CIT situation has been overblown and that this week’s up trend in the stock market is likely to continue with aggressive investors selling the Yen to participate in the rally.
After watching the Forex and Futures markets for several hours overnight and early this morning, it appears that today will be a two-sided trading day. The fundamentals are mixed and the signals are unclear. At this time it appears traders are not clear what to do about the CIT situation. If fear and uncertainty set in, then look for profit-taking in the equity markets.
A risk averse scenario is likely to trigger breaks in equities, crude oil and gold while setting off another rally in Treasury Bonds and Notes.
