Risk has become a four letter word and the markets don't want to speak it. The New York session started with a glimmer of hope for the carry trade and equity trades. The JPY crosses and equity futures were trading near their highs for the day as New York traders walked in the door. They were immediately slapped in the face as a major U.S. investment bank stated that they expected a major U.K. bank to write down an additional $12 billion due to the sub-prime issue. Surprisingly we saw equities and carry trades rally once equity markets opened. However, the market then got back in risk aversion mode late in the day and decided to make up for lost time. As the end of day approached we saw equities get hit hard as did the JPY crosses and USDJPY. New York saw USDJPY trade from the 108.60 area down to near 107.20, EURJPY trade from the 161.50 area down near 159.55 and GBPJPY trade from the 224.80 area down to the 222.00 area. AUDJPY was especially hard hit as it traded from the 96.40 are down to test near 93.00. High yielding currencies have taken big hits on the risk aversion trade as the markets may be thinking that interest rates will be heading lower due to the current market circumstances. Should we continue to get bad news out of the sub-prime arena we can expect that the risk aversion/carry trade will continue to unwind.

The data for the Asian session is light. We will be getting some data on Japanese service prices later. This may have a mild effect on the market but don't expect it to last. The markets have only one thing on their mind and that is to unload risk. Be alert to further bad news from the credit markets, downgrades of financial companies and more fall out from the sub-prime crisis. These events have driven the markets for the last 5 months and will continue to do so as long as the news continues to be negative. Traders who dare to ignore these factors will be playing with fire.

Upcoming Economic Data Releases

  • 23:50 GMT Japanese Corporate Services Price Index (YoY) for Oct.; Expectations 1.5% vs. prior 1.4 % (relevance: medium)