The sun is shining. The birds are singing. Carry trades are higher and so are equities. Could all be right with the world? One would think so after today's market action. It is odd however, that just 2 short days ago the doom and gloom atmosphere in the markets was as thick as pea soup. Once again today we see that volatility is the name of the game. We have seen some serious corrections in carry and stocks over the last two days. However, we can not be 100% sure that this is just a correction or the beginning of a new bull market for the risk/carry trades. We can be sure that volatility will stick around though, as evidenced by the moves we saw in F/X today. The JPY crosses were once again all the rage for the New York session as they continued their rallies from yesterday. We had USDJPY move up from the 109.50 area and test near 110.50. EURJPY rallied nearly 2 full JPY to trade from the 161.55 area up to trade near 163.60. The high yielding JPY crosses once again had the biggest moves. GBPJPY rallied nearly 2.5 JPY to trade from the 226.25 area up to the 228.75 area. AUDJPY made just about a 2.3 JPY move to trade from the 95.90 area up to the 98.20 area. Much of today's move can be attributed to the Fed's Kohn sounding rather dovish in his speech today. He had been hinting that the Fed would be taking into consideration the recent market turmoil at the next FOMC meeting in December. He also mentioned that there was a noticeable slowing in growth of consumption. The markets took that to mean a rate cut was in the cards for the next meeting. We also had the Fed Beige Book paint a gloomy outlook for the U.S. economy. That added to the markets perception that interest rates would be cut. A lower interest environment is good for equities and carry trades so that is why we saw the rallies today.
We will have to keep an eye on Asian equity markets to see if they can continue the pleasantries. Should the joyous mood continue in Asia we should see the JPY crosses gain even more ground. We do get fairly significant data out of Japan tonight so we have the potential for the rally to continue. We will be getting Japanese Industrial Production. This release will give us some insight as to how the Japanese economy is fairing. Also be on the lookout for more or negative news from the financial sector. News from this arena has been driving the markets and keeping volatility at a premium. In trading environments like this one can not afford to lose focus. Traders need to be tuned in on a regular basis in order not to miss out on numerous trading opportunities.
Upcoming Economic Data Releases
- 21:45 GMT New Zealand Building Permits (MoM) for October; No survey, prior -8.3%
- 23:50 GMT Japanese Industrial Production (MoM) for October; Expectations +1.5% vs. prior -1.4% (relevance: high)
- 23:50 GMT Japanese Industrial Production (YoY) for October; Expectations +4.2% vs. prior +0.8% (relevance: high)
