This past week has seen an almost “perfect storm” of events, making it almost impossible to keep up with developments whilst at the same time trying to comprehend the scale of the devastation that has hit Japan.
Last week’s “flash crash” in the Yen and subsequent bounce back typified market volatility and resulted in the G7 stepping into the currency markets for the first time in over a decade on Friday, with the BOJ leading the wave of Yen selling, supported by other central banks also buying their own currencies against the Yen. However, despite this intervention the start this week still sees the usd jpy sitting in the 81 region and, so far, showing little sign of breaking into the recent sideways consolidation which has seen the pair oscillate between 80 to the downside and 84 to the upside.
However, perhaps the most significant aspect of recent market sentiment is the reluctance of traders and investors to move into the US dollar which under normal circumstances would be considered the most obvious safe haven. Instead, today we are seeing the usd index moving towards the lows of 2009 at 74.17 and a likely breach here will see it re-test the 70.67 area of 2008. The significance of this move cannot be underestimated as the market passes judgment on the FED’s determination to continue with its loose monetary policy, or as a fellow trader puts it: the FED’s “financial foolishness” knows no bounds. Of course, Jean Claude Trichet also helped matters along on Friday when he suggested that the ECB do not intend to postpone raising interest rates in April, despite the situation in Japan. This has helped to push the euro vs usd towards last November’s high of USD1.4280, and any clearance here could see a re-test of the USD1.4572 of early 2010.
What to watch this week? Usual crop of economic releases may simply be overshadowed by global events. Ben Bernanke is due to speak on Wednesday and there is an EU summit at the end of the week as the first quarter of 2011 draws to a close with equity markets in particular wanting to close on a positive note.