Expert Analysis of Today's Market

Yen Pares Overnight Losses

Hans Nilsson 2007-08-20

Trading mixed on Monday, the dollar was higher against the yen, little changed against the euro and slightly lower against most other key currencies. The yen fell versus major currencies for a second day on rising Asian and European stocks following the Federal Reserve’s decision on Friday to cut its discount lending rate. However, the yen pared its losses against the euro and dollar as US stocks and t-bill rates fell indicating further stress in the credit market.

Last week the USD/JPY fell to the lowest level since June 2006 on massive unwinding of yen carry trades sparked by the US subprime debacle but later found support in the 111-area and gained on recovering stocks. Today the USD/JPY climbed to resistance at 115.50 after Asian and European equities jumped overnight; however, the pair reversed gains as US stocks stumbled. The pair may fall further as it is likely to take a long time to unwind carry trades.

Financial and Economic News and Comments

US & Canada

The index of leading US economic indicators advanced 0.4% in July, matching forecasts, after falling 0.3% in June, the Conference Board said.

Three-month Treasury bill yields fell the most in at least two decades indicating the expanding credit crunch will lead the Federal Reserve to cut interest rates next month.

The Federal Reserve Bank of New York said Monday it will redeem $5 billion in Treasury-bill holdings on Thursday. “This action is designed to give the Federal Reserve Open Market Trading Desk…greater flexibility in the day-to-day management of reserve levels to offset factors that may add reserves to the banking system, such as additional discount window borrowings,” the New York Fed stated.

Deutsche Bank has gone to the Fed’s discount window, Financial Times said.

Europe

UK housing prices rose for the fourth consecutive month in August. Countrywide asking prices rose 0.6% m/m and 12.8% y/y. However, London housing prices saw its first monthly decline since August 2006. Asking prices in London fell 0.1% m/m in August but rose a strong 23.4% y/y, nearly double the nationwide rate.

Asia-Pacific

China’s in a move to liberalize its capital account said it will let individuals buy Hong Kong stocks, testing a plan that may eventually allow free capital flows.

FX Strategy Update

2008
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