Monday October 27, 2008 - 19:48:04 GMT
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USD Trading Outlook: Far East Open for October 28, 2008
USD Trading Outlook: Far East Open for October 28, 2008 :
- The performance of U.S. share markets was not stellar Monday, but once again they did not pile onto overseas weakness heading into N.Y. trading.
- The G7 set the stage for forex intervention early in the day Monday as it voiced its concerns about the recent JPY volatility. We would not take the comments by the French Finance Minister too seriously suggesting that Japan is on its own when it comes to JPY intervention.
- One problem Japan faces is that this has not been a speculative move into the JPY. It has been an unwinding of a decade long structural move into carry trades, not only at the wholesale level but also by retail investors.
- Japan remains a key focus as tumbling share prices (Nikkei fell -6%) affect the capitalization of Japanese banks who hold equties as part of their primary capital. The more the JPY gains, the weaker stocks move.
- With banks stabilized, and interest rates in many countries almost as easy as low as they can be. The focus now is on equity prices. Intervention in equity markets remains a serious option if U.S. shares start to tumble again. In the U.S., such could easily be done via equity index futures so that no single company is singled out.
- After Asian bourses fell again, European bourses recovered after the U.S. stabilized. Bond prices are generally weaker.
- The USD is trading mixed. The EUR and GBP are weaker. The CHF and JPY are sharply higher.
- Many on the street are calling for a -50bp rate cut on Wednesday. We expect a token ease of only -25bps as there is no reason at this juncture for the central bank to use up all its bullets now.
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