Get Markets Right

Guest writer: Ms. Malavika Belavangala

Last year it seemed that Japan’s sun was finally rising again. The Yen, seen throughout the world as a safe haven for investors, was one of the most stable and best performing currencies. The optimism with the election of the new government, and in November, Bank of Japan’s 10 trillion yen financial stimulus took the Yen to a 14-year high of 84.82 to the dollar. The political shift signified a positive picture for currency markets because new Finance Minister Hiroshida Fujii was a strong advocate for letting markets decide. This fuelled a rally for the Yen.

WILL POLITICAL CLOUDS DIM THE YEN?
Beginning of 2010, the Japanese government accepted an ailing Fujii’s resignation. Fujii, maintained the principle…

I am looking forward to an exciting day today with loads of numbers and then the FOMC meeting as a fine finish.

Just to mention the positive Japanese stocks this morning. The banking sector went up as it seems likely that the tougher capital rules will be delayed. The Japanese banks will probably get 10 years to adopt the new rules. Short term, it of course helps the profitability in the banking sector and give some relief (also the reason for the delay I assume). One of the reasons to tighten the rules was to protect the investor, but to give a 10 years deadline is equal to cancel them. Within the next 10 we will have had another crisis…

I think the quarterly Bank of England report released Wednesday 11^th give some good hints to the market. Particularly when we bear in mind that Bank of England has been very negative. The Bank forecast growth rates of 2.1 per cent for 2010 and 4 per cent for 2011. This is suddenly much higher than the outlook of private sector economists and the Treasury’s forecast.

Bank of England still tells us not to be too excited with the wording from the governor Mr. King “Small movements in quarterly growth rates will not alter the extent of the challenges now facing the economy, such is the scale of the fall in output over the past 18 months,” he said. “We have…

Hot Topic – DPJ wins – Deep Pain Jammed LDP

The victory for The Democratic Party of Japan (DPJ) and their party leader Mr. Yukio Hatoyama is not a surprise. Though, after almost 50 years LDP government leadership of the second largest economy in the world, I certainly think the political change in Japan is a Hot Topic. This is a short view on what we can expect of political changes and what to watch out for as an investor and in corporate treasuries.

DPJ will surely try to outlive two headlines from their election campaign. One is to change the export dependent economy into a domestic demand economy. Second is to loosen the tight bands between the government and the large…

Foreign Exchange – EUR/USD will reach 1,5000 this autumn

EUR/USD

It is long time ago since I have seen EUR/USD trading in such tight range as it has for some time. When we have these situations some players tend to sell volatility too late, it also happens these days.

Some investors have bought “Double-no-touch” options with barriers at 1,3900 and 1,4500. It means that EUR/USD has to trade within the defined range until maturity. Betting that something will stay within a range is equal to sell volatility. The EUR/USD volatility has gone down for a long time so from a volatility perspective some are selling at the lows. It feels like the typical trades that some are done when the range is about…

EUR/USD (1,4240)
My target remains 1,4500, where a clear break of 1,4250 is a crucial step towards the target. Still it’s no new trend, but more that it feels more natural to trade within the range 1,40 – 1,45. One good argument for a higher EUR/USD is that the market is not prepared for a surge.
Like during several months do we need to watch the equity market to explain the currency moves. But as mentioned last time, I argue that fundamental economic data is growing in importance when it comes to the greenback. The market is talking about global economic improvement, but so far it is just expectations. When it comes to real data it’s hard to see any true…

EUR/USD (1,4000): Last I argued for a move to 1,4500 followed by a retreat towards 1,4000. The high was around 1,4325 and not 1,4500 but afterwards sold off to reach 1,4000. The trading pattern suggests that the air above 1,4250 is thin, but I feel, and will still argue, that the momentum points towards 1,4500.

EUR/USD still very much tracks the equity market but equities have lost upside momentum and EUR/USD hasn’t. It points towards less correlation between equities and EUR/USD for the coming period.

The growing risk appetite in Far East creates EUR inflow and should be observed, so keep a close eye on EUR/JPY and investor news from Japan.

I expect fundamentals to gain importance in the currency market,…

EUR/USD (1,4105): Yes, with capital flows into Europe combined with some concern about the US debt.

Let’s take the last one first. We are many who have raised the US debt concern several times and it will be a long term burden for the greenback. Though the latest USD sell offs on that account seems more speculative than fundamental. On the other side of the Atlantic, in Europe, are we trying to save everything with state debt (lending plus serious large off balance sheet positions) so the debt concern will mid term swing back hitting the Euro.

The capital flows are more fundamental, as what I have seen origin from Japanese investors to a large extend. We don’t like to hear…

Below you will find my weekly view on the very challenging financial markets.

Read more about all the interesting happenings in the financial markets in the 4 entries here below. I hope you find it interesting to read my private view about the consequences for the stock markets, currencies, China and what to expect from the central banks.

I apologise for not having updated with comments the last 3 weeks but I had 1½ weeks holiday on 2 very nice hotel. Very unfortunate did the wifi not work. Then Easter arrivved……

The 4 entries from today are:

Currency markets – Back in the risk aversion / appetite game again

Equities – A new recovery shape has been invented – the W shape recovery.

China…

Currency markets – Back in the risk aversion / appetite game again.

EUR/USD (1,3180): This time the FX comments are a bit shorter as it is mainly a correlation play with risk aversion / equities right now.

During my holiday the long entry idea at 1,3300 was reached and is still alive as the stop loss is at 1,3000. The range after was 1,3100 to 1,3600. I had expected EUR/USD to trade much closer to 1,4000 after Easter based on the buoyant stock market. Clearly didn’t materialise so far and EUR/USD looks toppish below 1,3600 right now. I keep the idea, but I still believe in renewed focus on problems in some CCE countries.

One interesting figure I noticed during my holiday…