20:00 GMT (Global-View.com) Sep 15- Forex markets spend the session Wednesday digesting BOJ forex intervention in the USDJPY. One school of thought is that it was the JPY against vs. the CNY that triggered intervention. Japan is highly sensitive to the competitive trade advantage that China gets from a weak CNY vs. the JPY. Since the CNY is pegged to the USD, Japan can impact the value of its currency vs. the USD and CNY by intervening in USDJPY. The Bank of Japan surprised the markets early by initiating a round of heavy intervention in the USD. The intervention apparently was unsterilized. There are market reports that the BOJ remained in the markets during Europe and the U.S. They promised to be active Thursday in Tokyo as well. While the timing of the intervention was a surprise, the actions were inevitable with the strong currency a significant weight on the economy.
The importance of unsterilized forex intervention is that the JPY being dumped into the forex markets should work their way into Japanese money markets and provide additional monetary stimulus (Quantitative Ease) to the Japanese economy. Some feel this action will presage similar activity (QE) next week by the FOMC.
Look for more political pressure on China to allow the CNY strengthen over this week and I expect for the Chinese government to make a token gesture. Thus U.S. officials will get something while China will not yield a lot. There has been chatter recently that China may have been buying JPY and JGBs to diversify its forex reserves.
UPCOMING DATA HIGHLIGHTS: The Far East will see a policy decision by the Reserve Bank of New Zealand. No rate changes are expected. In Europe, U.K.retail sales are awaited along with EZ trade data.A policy decision by the SNB is expected as well. Opinions are split between a +25bp hike and no rate change. In North America, the U.S.will see 2Q10 Current Account data, the PPI, weekly jobless claims, TIC data, the Philly Fed Survey and natural gas inventories.
The EURUSD is steady on the day and the GBPUSD is easier. The EURGBP cross is steady. Traders are still watching the European sovereign debt situation.
In the GBP, markets are keeping an eye on the U.K. economy.
The USDCHF is up and EURCHF is higher. The SNB strong stand in supporting the EUR against the CHF has waned after massive FX losses. Flows out of the EUR into the CHF remain an issue for the SNB.
The USDJPY is up sharply and the EURJPY cross is higher. While Japanese public finances are a mess, analysts point out that most JGBs are owned by Japanese, so Japan is not dependent on foreign investment. The government has been pressed the BOJ to promote growth and favors a lower exchange rate.
Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade continues to be turned on and off almost daily. As for the commodity currencies (CAD, AUD and NZD), they are lower vs. the USD. The Bank of Canada recently has been sending mixed policy signals. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, the RBA is unlikely to tighten in September. The RBNZ is now in a reduced tightening mode. Oil and gold are mixed. Gold is still favored as a refuge from paper money.
EQUITIES & INTEREST RATES
Equities and Bonds are also risk trades. Far East equities closed mixed. European bourses were down. U.S. equities are up. The U.S. 10-yr was last 2.72%, +5 bps.
Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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