Another wild day in financial markets but this time the dollar went down and the JPY crosses traded higher. The reversal in fortune for the carry trade was in part due to the surge higher in global equity markets. US stocks rallied after better than expected earnings from Wal-Mart and news that Goldman Sachs is not planning a large write down in assets related to sub-prime mortgages. USD/JPY surged higher and is nearly 200 hour pips higher from yesterday’s yearly lows. EUR/JPY and GBP/JPY were also big figures higher from their lows touched just yesterday. The USD was also generally lower against most currency pairs except for USD/JPY as EUR/USD found support ahead of 1.4500 in yesterday’s Asia session.
Is the sell off in the JPY crosses and equity markets done with or is this a squeeze in front of economic data later this week? One has to wonder if the write downs by US banks are overly conservative and that the worse has been priced in. If so, perhaps global equity markets have reached a psychological bottom and could rally higher. However, the US economy is still at risk. If the US economy slows this could put more homeowners into foreclosure, further putting pressure on the housing market in a vicious cycle. It seems to early to make any conclusions just yet.
Looking forward, we are not even half way through the week and we’ve seen some very volatile trading. Expect more choppy trading as there are still important economic data to be released including US retail sales, producer price index, and consumer price index among others. For traders, the uncertainty can be a boon as market fluctuations present plenty of opportunities.
Upcoming Economic Data Releases
- Australia: (12:30am GMT) Quarter over quarter Wage Cost Index expected 1% vs. previous 1.1% (relevance: medium).
