The main driver in FX remains overall investor sentiment, with stock market movements as the primary barometer of risk appetites. When stocks are up and sentiment is positive, the USD, the JPY and gold are typically sold, and when shares start falling, the USD, JPY and gold are all bought. The rally in shares that started this past week was echoed in EUR/USD strength and JPY-cross strength, but sentiment quickly turned on the surfeit of bad news, whether it was weak earnings, dismal data, or dire prognostications

The rationale for the yen’s haven status lies in the carry trade.
For years the low-yielding yen was used as funding for investments in a wide range of higher-yielding assets across the globe. This sent it down to multi-year lows against a number of currencies. But as the financial crisis swept global asset markets, many of those investments were liquidated. The resulting deleveraging pushed the yen sharply higher across the board.

23.02.2009

Key data and events to watch this week would be from the US. Tuesday starts it off with consumer confidence and multiple home price reports. Wednesday has existing home sales and the weekly oil inventory numbers, which have seen contributing to oil volatility lately. Thursday has Durable goods orders, initial jobless claims and new home sales . Friday rounds out the week with GDP, the Chicago PMI and University of Michigan consumer sentiment. Fed Chairman Bernanke's semi-annual testimony before the Senate is on Tuesday and the House on Wednesday which might be watched by the markets. Europe also sizzles with numbers this week with French consumer confidence, French Housing starts and German IFO surveys. Pretty light in the UK, which probably is a good thing, considering what the Pound has had to face in the last few weeks with a string of bad numbers. Japan has Bank of Japan minutes on Monday and trade balance report on Tuesday. With the Yen making new highs, it looks like more a case of unwinding of carry trade as the world interest rates converge instead of Yen as a safe haven as being reported by many. How can Yen be a safe haven when Japan has huge debts on its balance sheet and is rated as AA by two of the three rating agencies that count. With US set to pass the stimulus, we might see return of some risk appetite in the near weeks. With the global stocks meltdown, Gold has taken the status of second reserve currency. Coupled with the fact that the demand for physical gold is also very high, we might see further strengthening of Gold.

20.02.2009

Euro was bid and closed at 1.2814 coming down from the highs of 1.2875, with ECB officials remark saying zero rates were neither desirable nor required and sterling was also well bid with closing more than 1% at 1.4412. With BoE rates at a historic low of 1% (lowest since Bank of England was constituted in the 17th century to look at international trade) - carry trade is clearly not in favour of sterling. Dow plunged to its more than 12 year low - after trading 7249.47 intraday, the index closed down 1.3% to 7366. With investor sentiment at its all time low, gold demand as a safe heaven is peaking with gold rallying back to $1000 per ounce and treasuries continue to rally even after concerns about a bond bubble. The concern is that those nearing retirement would run for cover in gold only to be whipsawed once again, when the tide inevitably turns.