20:00 GMT (Global-View.com) Aug 12, 2010 The focus of forex trading Thursday was neither risk on or risk off. Dealers are still trying to pick up the pieces following the Fed downgrade of the U.S. economy on Tuesday and word yesterday that a couple of Irish banks had required some funding assistance. The U.S. once again saw a disappointing weekly jobless claims report with claims rising rather than falling as expected. An eventual improvement in the economy is likely be seen in this data series first. Earlier, Australia came in with a disappointing July employment report. Australia has been one of the key developed economies leading the world out of the latest downturn, so it is closely watched.
The JPY remains a key focus. A test of the USDJPY 85.00 line was a major event on Wednesday. Thursday saw a fair amount of noise (verbal intervention) out of Tokyo about the strength of the currency. There was talk of activity in the currency by Kampo (Japan's Postal Savings Bank). Tokyo's line in the sand in USD/JPY reportedly is 85.00, but Its ultimate line could be as low as 80.00..
UPCOMING DATA HIGHLIGHTS: The Far East will see no major data Friday. In Europe , Eurozone trade and revised GDP data are due. In North America, U.S. retail sales, CPI , the University of Michigan Surveyand Business Inventories are slated.
The EURUSD is now lower on the day and the GBPUSD is down. The EURGBP cross is up. Traders still watch the European sovereign debt situation.
In the GBP, the U.K. new government is politically vulnerable.
The USDCHF is up and EURCHF is down. 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 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 mixed vs. the USD. The Bank of Canada recently hiked interest rates by 25bps. The BOC sent mixed signals afterwards. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, RBA is unlikely to tighten in August. 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 lower. European bourses were mixed. U.S. equities are down. The U.S. 10-yr was last 2.72%, +4 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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