Who sinks, and who swims? 29 Mar 07

Key News
• Bernanke Indicates Rates to Stay Steady -- WSJ
• Capital-goods orders, excluding defense and aircraft, fell in February, igniting fears that businesses are becoming more pessimistic about the economy. -- WSJ
• Oil Trades Near Six-Month High as U.K. Raises Pressure on Iran Government – Bloomberg

• Key Reports Due (WSJ):
8:30a.m. Initial Jobless Claims For Mar 24 Wk. Expected: -1K. Previous: -4K.
8:30a.m. 4Q Final GDP. Expected: +2.2%. Previous: +2.2%.
8:30a.m. 4Q Corp Profits, final. Previous: +4.2%.
10:00a.m. DJ-BTMU Business Barometer For Mar 17 Wk. Previous: +0.6%.
10:00a.m. Feb Conference Board Help-Wanted Index. Previous: 32.
11:00a.m. Apr Kansas City Fed Mfg Index. Previous: 18.


“I think we agree; the past is over.”

   President George W. Bush

FX Trading – Who sinks, and who swims?

Is the situation in Iran getting serious enough to start making investors think twice about borrowing on the cheap to fund risky investments?  The action in the USDJPY would tell us it is.  In fact, $-yen sank almost 100 pips in yesterday’s trading, as the tension over captured British soldiers grew thicker. 

What’s more, the New Zealand dollar, one of the higher-yielding currencies, tumbled too – perhaps as part of an unwinding of yen short positions.

But what about USDCHF?  This trade has mirrored almost every move by USDJPY.  The correlation has begun to represent a re-pricing of risk.  But yesterday it failed to match the yen. 

The money flowing into gold is also noteworthy.  Recently the yellow metal has fallen victim to liquidity fears sparked by remerging risk.  It’s been as the value of the yen goes up, gold goes down sorta dynamic.  But not this time – the precious metal thus far looks to be fulfilling its notorious role as an inflation hedge and safe haven despite some yen strength. 

Time will tell as to whether we’re starting to see more risk-averse sentiment befall the markets.  For now, however, the situation with Iran could be headed down the fast-track to trouble town.  We could see more risk-averse trades if it gets there.

Some important German economic data is being released this morning.  Any upside surprises could give the euro a bid.  We also get U.S. annualized GDP.  Anything higher than the consensus 2.2% bump would help the dollar, but not as much as falling short of this estimate would hurt it.

A strong move in the euro and some follow-through by the yen could make for a nasty combo.  The dollar is treading water.  Will it get tossed a life-preserver or have its head pushed under? 

John Ross Crooks III

Average rating
(0 votes)