The New York session saw the JPY carry trade, borrowing JPY to buy high yielding currencies, get slammed. Concerns about the stability of major U.S. banks surfaced today after Citibank was downgraded by two large investment banks. Along with the downgrades came rumors that Citibank may have a large write down related to the sub-prime issue. We must stress that the write down statement are just market rumors. Those rumors have not been confirmed but the market does not want to take any chances at this point.
We saw the JPY crosses and USDJPY get hit hard off of the credit concerns. U.S. equities also sold off hard as well and that added to the selling in the carry trade as market players were in strict risk aversion mode today. EURJPY and GBPJPY took hits for nearly 200 pips while USDJPY was hit for near 150 pips. We saw EURJPY quickly trade from the 167.20 highs down and briefly trade under 165.00. GBPJPY traded in similar fashion as it went from the 241.40 area down towards 237.90. USDJPY was a mirror image of those two pairs trading from the highs near 115.95 and then down to briefly trade below 114.50. These pairs have made back some of their but still trade with a heavy feel to them.
We have the U.S. jobs data tomorrow and the market could also be lightening up a bit of their carry trade positions ahead of the data, adding to the woes of the carry trade. We would expect to see the market consolidate overnight as no one will want to get too aggressive ahead of the data.
Upcoming Economic Data Releases
No release scheduled for the Asian session
