special reports

Forex Market Update: Yen Rises as Risk Appetites Fades

Friday, 05 September 2008 06:56:00 GMT  |  David Song, Currency Analyst

The Japanese yen continues to shrug off USD strength as traders unwind carry trade and structured positions in JPY crosses, fueling JPY cross stop-loss selling in early Asian dealings.

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Economic Events 09/05/2008

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04:22 GMT Commodity prices are mixed in Asia with gold up but copper and platinum weaker. Copper prices in Shanghai are reportedly down 2% according to Reuters and the lowest levels in three weeks. Tokyo platinum prices fell by the daily limit with slowing global demand linked to the decline in both metals. Gold however has managed to bounce with the yellow metal bouncing off lows of $790.35 in early Asia to trade to current levels of $796.00. October oil futures have consolidated in a tight range of $107.25-$107.95.

05:28 GMT - The 150.00 level will be watched closely on EUR-JPY since strong bounces in the cross have occurred around the 150.00 level over the last two years. A bounce in March 2006 was made off 150.76 and another bounce off 149.26 in August 2006 while this year, a bounce off 151.71 was made in March 2008. So far, the trend low seen today was 150.62, and the lowest since August 2006. Some stops are expected under 150.00 though the larger stops are tipped under 149.00. Some bears feel that the cross has been overvalued for some time and would not rule out a correction back to 130-140 in the months ahead, and levels last seen between 2003 to 2005.

06:38 GMT Bund futures are continuing their ascent, following on from yesterday's rise in the wake of the press conference, where the ECB lowered their growth forecast. As of 6:36GMT the December 10-year Bund future is up 15 ticks at 114.85. The 10-year Bund yield is down 2bp at 4.05% and the 2-year yield is down 5bp at 3.998%. In the money market the December 3-months Euribor future is up 0.010 and back months futures are up as much as 0.065.

06:59 GMT – The Swiss franc benefited from a sea-change in global sentiment, with global growth concerns and the pick up in risk appetite fueling heavy carry trading unwinding. EUR-CHF dived to 1.5815 lows and GBP-CHF extended to 1.9489 lows late on in the Asian session. European accounts have been bargain hunting in to the European session, which lifted EUR-CHF towards 1.5900 and GBP-CHF back in to 1.9600, however, the underlying trend for these crosses is bearish. In comparison, Switzerland's economy is fairing better than its European counterparts, which has also provided a safe haven bid. USD-CHF is supported by broader dollar gains, although the topside was hampered to a degree by the stress on the crosses. Ahead of the weekend market participants are expected to trade defensively, although U.S. August payrolls data will influence dollar positioning. On the whole, the market is long, although short term accounts have been profit taking at the range extremes after the Asia volatility.

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Forex Market Highlights

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The dollar made fresh trend highs against a number of currencies in Asian trading as capitulation in commodities, stocks and carry trades continues. Slowing global growth, worries over hedge fund losses and bank liquidity concerns continue to have the market defensive. JPY continues to shrug off USD strength as traders unwind carry trade and structured positions in JPY crosses, fueling JPY cross stop-loss selling in early Asian dealings. AUDUSD, EURUSD, GBPUSD and NZDUSD all hit new lows for the year with GBPJPY, EURJPY, NZDJPY and AUDJPY all at the year's lows and even multi-year lows. The resultant volatility in the emerging markets saw another wave of reports of Asian central bank intervention in the KRW, PHP, IDR and MYR, following heavy RUR intervention overnight as capital continues to flow out of Russia. Of note was the report in the New York Times that China's central bank is short of capital with investments tied up in an estimated $1T in Fannie Mae and Freddie Mac holdings.

To contact the author of this article, please email: dsong@fxcm.com

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