Dow Jones Industrial Average (5-minute chart)
source: Tradestation
Forecast for Higher Yielding Currencies
I have been short AUD/JPY since the beginning of October and I expect higher yielding currencies to fall further against the Japanese yen once investors start looking at real economic fundamentals and beyond the short term implications of the U.S. presidential election. In fact, the world economy is entering a major downturn in face of the most dangerous financial crisis since the 1930s and global growth is expected to moderate from 5.0 percent in 2007 to 3.9 percent in 2008 and 3.0 percent in 2009, according to the International Monetary Fund (IMF). As a result of this, lower interest rates could be needed to promote growth around the world which could make higher yielding export dependent currencies like the Australian dollar particularly vulnerable going forward. Moreover, an emerging trend of deleveraging in the financial sector, high exchange rate volatility and more banking regulation could make carry trade a very poor strategy from a risk adjusted perspective.
source: Tradestation
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Written by Antonio Sousa, Chief Strategist for DailyFX.com
To contact the author of this report, e-mail asousa@fxcm.com
DailyFX provides forex news on the economic reports and political events that influence the currency market.
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