• Home ::
• Technical ::
• Market View ::
• Currency Speculations

• Send
• Print
• Add To
• Rss

Currency Speculations

ee5c7f78-4015-45b7-a79a-2a5aff1910e1

0

0

Global Medley

Sun, Jul 1 2007, 18:30 GMT
by Mihai Nichisoiu

Mihai Nichisoiu

In my letter to clients of last Sunday I was noting:

'I think both the Australian and the New Zealand Dollar are going to extend higher against the US Dollar.
The only thing which could temporarily disrupt the current state of affairs is a brand new central bank intervention; while I don't think such action would be enough to decisively change the current market sentiment, it could be quite difficult to deal with if leveraged positions are being held.

In the short run, I don't see much positive potential for the US Dollar against the main European currencies either.

I think the USD/CAD is still going to drop to new historical lows. Chance that the recent short-term volatility actually marks a notable inflection point in the pair's larger timeframes is, in my view, extremely small.

I don't perceive the Yen bottoming across the board - on the contrary, to me the underlying strength in the USD/JPY looks enormous and the pair seems ready to make further headway enroute to the upper 120. Moreover, since the US Dollar does not yet seem to attract any significant buying interest elsewhere across the board, I could only assume further price gains loom in the main Yen cross pairs.'

Eventually, the high yielding currencies finished the week higher against the US Dollar, as the main European currencies did themselves. The USD/JPY's down movement did not turn into a collapse, whereas most Yen crosses have recovered surprisingly well. The USD/CAD did reach new historical lows.

I'll stick to my last Sunday opinions for now, although I don't think the ongoing market movements are unconditionally self-preserving and therefore I stand ready to adjust my views if the situation requires so.

A few days ago I saw on Reuters a possible explanation for Tuesday's relatively modest performance of the Japanese stock market: the Yen hurting exporters.
One could only stand amused. So, after a sizable - or, better yet, 'anomalous' decline of the Yen, according to the Bank for International Settlements itself - the Japanese exporters have any time thinking how a 80-pip or so negative correction in the USD/JPY could start looking like a disaster.

Even though just another top Japanese official has recently warned about the risks of making one-way currency bets (but, doesn't a one-way bet even in foreign exchange actually suggest exactly the opposite, namely a highly unlikely chance of losing?), I continue to perceive a strong deal of underlying strength in the USD/JPY - and I believe that, unless major, global surprises arise just out of the blue, the currency pair will make further headway.

For just now, I don't 'buy' the global corrections which have been ongoing nowadays - including the Yen's rebound.

Although they may be listed as fundamental pretexts of a global financial turmoil at some point in the future, the most recent US subprime related worries seem like a brand new 'crying wolf' sequence - in spite of all the negative headlines about hedge funds inundating the mainstream media these days (supposedly, hedge funds had triggered the main events in the most important financial markets across the board over the latest years, so when the same hedge funds are presented to the public as 'villains' one may think something more major in changing - much like in the way that extremely serious US corporate malfunctions started to make the mainstream media's covers and frontpages only after the US stock markets topped out several years ago).

Meanwhile, I do not perceive a reversal underway in the main European and US stock market indices, and my opinion is China's stock market itself still has upside potential ahead of a potentially severe blow-off.

Published on  Sun, Jul 1 2007, 18:57 GMT