The New York session began the day looking as if the financial markets were headed into a severe tailspin. The JPY crosses had been hit hard overnight as was USDJPY. U.S. equity futures were giving the impression that stocks were about to drop off the table. More bad news from major U.S. financial firms was spooking the markets. Citibank had to restate earnings estimates and speculation increased that they may have to write down up to $12 billion from sub-prime exposure. New York traders began the day by continuing the overnight trend of selling the carry/risky trades. We saw EURJPY take out the overnight lows near 165.30 and make a quick run to test near the 164.90 area. GBPJPY traded in similar fashion as it took out the overnight lows near 237.50 and then test near 237.10. USDJPY also made a new low for the day when NY got going and tested near the 114.00 level. Once stocks opened we saw an initial sell off in equities. However, when stocks did not collapse as people were expecting we saw the carry trade rally on the back of stocks turning around a bit. EURJPY, GBPJPY and USDJPY all rallied off their lows and then above the overnight lows. They all currently remain well off their worst levels of the day. We will have to see if Asia can continue the rally off the lows once they get going.
With the carry trades and stocks not being able to take out the lows from last week we may be in for a period of consolidation this week. With interest decisions due this week from Australia, the U.K. and the ECB we would expect that no one will want to get too aggressive ahead of these announcements. Be on the lookout for any story related to credit and sub-prime issues this week though. Should we see any more bad news from this arena we could see more people looking for the risk reduction trade and therefore we would also see the carry trade get hit again.
Upcoming Economic Data Releases
- 02:00GMT; New Zealand ANZ Commodity Price Index for Oct. No survey; prior release +0.4%
