Sunday, March 20, 2011

Coordinated Action!

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By Mike Conlon | March 18, 2011

For the first time in nearly 11 years, currency intervention by the G-7 has helped weaken the Yen in the wake of the catastrophe taking place in Japan. Thus the G-7 has been selling, though it will be interesting to see just how weak the Yen can go given the economic climate. Japan had trying to weaken on it is own, though the tide it was facing was too great to manage alone.

Meanwhile, the nuclear situation is still very uncertain, though efforts to contain the problem persist and the hope is that a disaster can be avoided. To what extent the damage has already occurred is uncertain at this time. Speaking of uncertainty, let’s not forget about the situation in Libya, where the international community may be ready to take action.

Despite the risk in the marketplace, the G-7 actions have encouraged financial markets as a backstop for Yen will stabilize the economic situation. Stocks in Japan have rebounded earlier this morning, and risk appetite has appeared to increase as both commodities and equities are higher.

In other news from around the globe, UK consumer confidence figures came in lower than expected, and the Euro zone trade deficit widened more than expected.

On this side of the pond, Canadian inflation appears to lessened slightly better than last month’s reading and the expectation.

So enjoy this action while it lasts. Event risk is still very high and any worsening of conditions could revert the markets back toward risk aversion.

In the forex market:

Aussie (AUD): The Aussie is lower this morning after trading higher overnight as a result of the G-7 actions. Risk in the market is still high, and the markets are proceeding accordingly.

Kiwi (NZD): The Kiwi is also lower trading similarly to the Aussie.

Loonie (CAD): The Loonie is mixed as oil prices have moved higher and are now trading firmly above $100, though CPI data showed an increase of 2.2% vs. an expectation of 2.3%. While inflation may be tempered, risk themes also weigh on the currency.

Euro (EUR): Its good to be the “anti-Dollar” when risk-taking is occurring in the market place. Stocks are higher as is oil, and continued Dollar weakness due to QE2 is still helping markets move higher when risk aversion lessens. (Click chart to enlarge)


Pound (GBP): The Pound is also mostly higher despite consumer confidence figures that came in at a record low as UK citizens worry about the sustainability of the economic recovery and the outlook for jobs going forward.

Dollar (USD): Now news here in the US but in case you missed it the Fed this week reiterated its commitment to weaken the Dollar. If not for heightened global risk, the Dollar might be much lower.

Yen (JPY): The Yen is obviously lower across the board as the historic actions taken by the G-7 have helped keep the Yen from appreciating and have provided Japan with some economic relief at a time when they need it the most. (Click chart to enlarge)


Hurray for the G-7 for doing the right thing and coming to the aid of Japan in time of crisis. This historic action should help give Japan time to focus their energy on the nuclear crisis and disaster relief efforts without having to also worry about a potential currency crisis as well.

However, this action does not cure the global economy’s ills. There is still heightened risk in the markets and commodity inflation due to weak Dollars still poses a threat to economic recovery.

It is hard to see a reason to go long risk into the weekend, so I’m keeping my trading to the short-term and won’t be carrying any positions over the weekend.

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