Ralph Shell @ 12:44 PM, Tuesday August 24 2010
The early US markets had a plethora of trades and statistics to strengthen the resolve of those bearish on the global economies. In the process the safety seekers, no doubt emboldened by the popularity of their numbers, continued to buy the yen, the USD and US Treasuries.
As Asian stocks tumbled the yen appreciated, decisively violating the support in the 85 area versus the USD, eliciting stops, and selling down under 83.60 before a minor rally over the 84 handle. PM Kan, who said his week end conversations with the Bank of Japan president did not include talks about the value of the yen, was forced this morning to concede the yen's strength was of major concern to all. Japanese officials met with union and business leaders, hoping to find a solution for the strong yen which they fear will abort any Japanese economic recovery. While there is talk of a concerted effort by G-7 members to devalue the yen, this is probably wishful thinking. At these levels look for increasing talk of intervention to force a weaker yen.
The euro market, following the lead of the Asian markets, continued the global slid. The pound was given a nudge to the down side when Joseph Stiglitz, a Columbia University professor on tour in Ireland said that the British decision to reduce government spending by the Tories risks the possibility of a double dip recession. Remember however, Stiglitz is a member of the Keynesian big spenders, like Larry Summers, Ben Bernanke, and Tim Geithner in the current US administration, who like all big government spending programs, his views are no surprise.
The North American numbers continued in the same bearish vein. Canadian core retail sales were - 0.5% worse than the expected +0.1% and -0.3% in the previous period. Shortly thereafter US existing home sales were reported to have sunk 27.2%, the biggest one month change ever, and the inventory of unsold homes jumped to a 11 year high. This afternoon, confirming that US debt remains in vogue, it was announced the Treasury sold $37B of 2 year debt at a yield of 0.498%.
It seems hard to believe the USD is so revered when the economy shows so many signs of weakness. Where do you find a trade in all these cross currents? Well the A$ has been beat up primarily on fear of an economic slowdown, and perhaps because of the hung election, and at the same time the yen is being honored like some sort of deity. Maybe you can buy the AUD/JPY on this break in the .7450 range, using the appropriate money management stops. Perhaps by week end some of the market moods will change.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.