Month: December 2009

By GCI Fx Research

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The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4305 level and was capped around the $1.4440 level.  The common currency gained 2.52% in 2009.  Data released in the U.S. today saw weekly initial jobless claims improve to +432,000 from a revised +454,000 while continuing claims improved to 4.981 million from a revised 5.038 million the week before.  The common currency fell to three-month lows on U.S. economic recovery signs and an improved economic outlook from the Fed.  Some dealers believe the Fed is inching closer to removing more of its monetary stimulus measures.  Recently, the U.S. dollar has started to benefit from improving U.S. economic fundamentals, a reversal from earlier in the year when the greenback failed to markedly improve from better fundamentals.  In eurozone news, data released yesterday saw EMU-16 bank lending decline 0.7% m/m last month, the third consecutive month of declines.  Also, the EMU-16 leading economic index rose 0.7% to 107.1 last month following October’s 0.6% gain and September’s 0.9% gain.  Moreover, the EMU-16 M3 money supply fell by 0.2% y/y, far below the forecast.  The euro’s share of global foreign reserves has risen to all-time highs according to the International Monetary Fund.  The euro’s share of global foreign reserves is now at 27.7% whereas the U.S. dollar’s weighting has falledn to 61.6%.  ECB member Mersch this week reported the eurozone economic recovery looks “moderate and precarious.”  In contrast, ECB member Kranjec reported there are signs the global economic crisis is over. ECB member Bini Smaghi reported global central banks should be able to adopt a more “minor role” in managing the economy next year “and the real economy can take over again.” Euro bids are cited around the US$ 1.3885 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥93.10 level and was supported around the ¥91.90 level.  The pair gained 2.63% in 2009.  In the absence of major news overnight, traders continue to square their books at year-end and react positively to dollar-supportive U.S. economic data.  Ongoing doubts concerning Japan Airlines and the company’s possible bankruptcy are having a negative impact on the yen.  Standard & Poors yesterday warned Japan’s “AA” credit rating could be lowered if Japan fails to stabilize its debt levels.  The Japanese government released a long-term strategy yesterday that aims to achieve GDP growth of an average 2% over the next decade.  Data released in Japan yesterday saw December PMI improve to 53.8.  Minutes from Bank of Japan’s latest Policy Board meeting were released last week in which the government asked the central bank to monitor deflation.  The minutes revealed “many” Policy Board members agreed “the bank would maintain its stance of responding promptly to changes in the market situation.”  Policymakers said the central bank “would adopt the most effective method for money-market operations that conformed to changes in financial markets.”  After an emergency meeting on 1 December, the central bank introduced a ¥10 trillion fixed-rate lending facility that was designed to arrest the yen’s advances and counter deflation.  The central bank also characterized the most recent bout of deflation as “mild.”  The Nikkei 225 stock index lost 0.86% to close at ¥10,546.44.  U.S. dollar offers are cited around the ¥94.75 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥133.60 level and was supported around the ¥132.45 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥150.65 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥90.05 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8270 in the over-the-counter market, up from CNY 6.8255.  People’s Bank of China Governor Zhou reported “2010 is a crucial year in strengthening the stabilization and recovery of the economy and defeating the international financial crisis.”  People’s Bank of China reported China’s foreign reserves management will face a larger challenge in 2010.  PBoC reaffirmed it will “gradually proceed” with exchange rate reform.

₤

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.6235 level and was supported around the $1.6050 level.  Cable gained 10.71% in 2009.  A Bank of England survey released today reported banks were more willing to lend to homeowners and companies in Q4 2009.  The quarterly credit conditions survey also indicated the availability of mortgage loans is expected to rise in Q1 2010 also.  Data released in the U.K. today saw Nationwide December housing prices rise 0.4% m/m and 5.9% y/y.  Prime Minister Brown talked up the U.K.’s economic growth prospects yesterday but acknowledged the economic recovery remains “fragile.” Brown must call a general election by early June.  Large spending cuts will likely be required to improve the U.K.’s fiscal position.  Most traders believe Bank of England’s Monetary Policy Committee remains in a wait-and-see mode and will expand its quantitative easing programs if required.  Monetary policy is expected to remain unchanged until February, however, when Q4 GDP and the latest quarterly inflation report are due.  Cable bids are cited around the US$ 1.5755 level.  The euro moved lower vis-à-vis the British pound as cable tested bids around the ₤0.8855 level and was capped around the ₤0.8955 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0285 level and was capped around the CHF 1.0385 level.  The pair lost 2.98% in 2009.  Data released in Switzerland yesterday saw the December KOF leading indicator improve to 1.68 from 1.62 in November.  KOF, however, also reported the Swiss economy will “significantly lose momentum” in the coming months.   Data released in Switzerland this week saw the UBS November consumption indicator rise to 1.28 from 0.88 in October.  This represents the third consecutive monthly increase, evidencing an increase in consumer spending.  U.S. dollar offers are cited around the CHF 1.0615 level.  The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4855 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6700 figure.

Daily Market Commentary provided by GCI Financial Ltd.

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DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.

By Ashley Smith – The Australian and New Zealand Dollars were among the top performers versus the U.S Dollar this year with the AUD advancing 27% against the greenback and the NZD 25%. This rise is due to the large difference in interest rates between the south pacific currencies and the USD. While the U.S interest rates are near zero, Australia’s lowest interest rate during the recession was 3% and New Zealand’s rate is 2.5%. Australia was among the first western countries to begin raising interest rates, hiking them a record 3 consecutive times since October to 3.75%.

The Australian economy has performed relatively well during the recession, assisted mostly by exports in commodities, particularly to China. While the New Zealand economy has not fared as well, the currency has benefited from the growth in AUD as the two currencies tend to move in the same direction. The two currencies have also benefited from the continuous rise in equity markets, as the Aussie and Kiwi are among the favorite higher yielding currencies.

The two currencies have come under much pressure in the past month as the USD rallied, after a surge of positive economic data from the U.S increased investors’ expectations that the Federal Reserve will raise interest rates sooner than expected. However, the steep decline of the two currencies appears to have been exaggerated and a correction has already begun taking place. As economic conditions continue to improve in the two countries, boosted by demand from China and the expectation for further interest rate hikes by the two Central Banks mount, the outlook for 2010 for the south Pacific Currencies remains optimistic.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

Better than expected Chicago Manufacturing Index and lower equities pushed the USD to new highs versus the EUR and JPY Wednesday. Trading is expected to be extremely light today as markets close early ahead of New Year’s Eve. Light trading tends to exaggerate currency moves.

Economic News

USD – Dollar Rises on Better than Expected Economic Data

The Dollar rose against the EUR and the Yen Wednesday as weaker equity levels reduced demand for riskier assets. The Dollar bought 92.43 Yen, the highest level since Sept. 8. The Dollar advance 0.1% to trade at $1.4338 versus the EUR. It reached $1.4273, the strongest since Dec. 23.

The greenback was boosted slightly following the release of a stronger than expected Chicago PMI for December. The Institute for Supply Management-Chicago Inc. said yesterday its business barometer increased this month to 60, the highest level since January 2006. Investors’ expectation was a slight decline to 55.2.The index reinforced expectations that U.S. interest rates could move upward sooner than previously expected.

The Unemployment Claims are due to be released today at 13:30. Economists expect the number to rise slightly to 460K from 452K. If the result is as expected the Dollar may come under pressure. Furthermore, liquidity is quite thin this past week which is typical for the days between the Christmas and New Year’s holiday breaks. Very light trading tends to exaggerate currency moves.

EUR – EUR Down on Lower Equities, Profit Taking

Profit taking and low liquidity ahead of the new year set the tone for Wednesday’s trading. A decline European and U.S equities dampened demand for riskier currencies and eroding demand for the EUR. The EUR dipped below $1.43 earlier in the session but has recovered most of the losses to currently trade at $1.4360. Late afternoon Wednesday in New York, the EUR was at $1.4336 from $1.4349 late Tuesday and at Y132.56 from Y132.09. The U.K. Pound was at $1.6078 from $1.5902.

The EUR came under pressure as the European Central Bank (ECB) stated Wednesday that lending to the private sector was down 0.7% from November 2008, the third consecutive monthly decline, signaling the Euro-Zone’s recovery remains fragile.

Trading is expected to be extremely light Thursday as Japanese markets will be closed and European and U.S markets will close early for New Year’s Eve. Some news releases are expected from the U.K, however, with the release of the Nationwide HPI due at 7:00 GMT and the BOE Credit Conditions Survey at 9:30 GMT.

JPY – JPY Down on Policy Dissatisfaction

The Yen weakened versus the Dollar yesterday following a report by Reuters claiming that Standard & Poor’s said Japan’s AA credit rating may be threatened if policy measures fail to stabilize and gradually reduce the nation’s huge debt burden. The Yen’s losses versus the Dollar intensified after reports suggested that Japan Airlines Corp. may declare bankruptcy. With the Japanese market closed today, the Yen’s movements will be determined by the news coming from the U.S and European markets.

OIL – Crude Continues to Rise on Drop in Stockpiles

Light, sweet crude for February delivery settled up 41 cents, or 0.5%, at $79.28 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 19. Oil rose for a 7th day as U.S. Oil and fuel stockpiles fell to their lowest point since March as colder weather in the U.S. increased demand for heating fuels. Oil prices have risen 14% since Dec. 14, and are less than $2 below their high for the year.

Oil closed at a six-week high yesterday as Crude stockpiles fell by 1.5 million barrels in the week ended Dec. 25, the fourth decline in a row. Further boost to Oil prices came due to concerns that unrest in Iran may affect supplies from the second-largest producer in the Organization of Petroleum Exporting Countries (OPEC). Signs the U.S. economy is recovering from the recession have also boosted prices.

Technical News

EUR/USD

The 4-hour chart shows that the momentum is still bullish. However, its Relative Strength Index (RSI) floats near the upper line indicating that the current trend might be closing to its end. On the hourlies, the local bearish correction is already intact. A bearish cross of the 2H chart’s Slow Stochastic validates that correction as well.

GBP/USD

The pair is in the midst of a very strong bullish move, as it rose more than 200 pips in one day. And now, as the Slow Stochastic on both the hourlies and the daily chart are pointing up, it seems that the bullish move might extend. Going long appears to be the preferable choice today.

USD/JPY

The pair’s bullish sprint has passed it through the 92.40level yesterday. As all oscillators on the 4 hour chart are pointing up, the pair might test the 93.50 level – making a 3 month record.

USD/CHF

It appears that the pair has fully resumed its downtrend and is currently testing the 1.0310 level. If the breach will indeed take place, another bearish movement is likely to take place, with a target price of 1.0280.

The Wild Card – Oil

For the past few days Crude Oil prices rose to almost $80 a barrel at what seems to be a mild bullish correction. However now, the Bollinger Bands on the 4-hour chart are tightening, indicating that a strong move is impending, and a bearish cross on the 4-hour chart’s Slow Stochastic is taking place, suggesting that Crude Oil is resuming its downtrend. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Market Movers of the Day

Europe

*Swiss KOF Leading Indicators worse than expected at 1.68

Americas

*US Chicago PMI surprised for the better at 60.0

*US EIA Crude Oil stockpiles dropped 1.5M barrels

The Overall Sentiment

Equities

US stock markets ended virtually unchanged in spite of the unexpectedly positive PMI figures for the Chicago region. The unpredicted rise of the Chicago PMI to 60.0, its highest level in about four years, failed to ignite investors’ appetite, which preferred to realize profits rather than open bets at the end of the year. The S&P 500 and the Dow Jones added less than 0.1% each. Profit taking set the tone for the day in European stock markets as well, putting an end to a five-day rally for its main indices. The British FTSE 100 lost 0.7% and the German DAX retreated 0.9%. The Japanese Nikkei 225 dropped 0.9% as rumors of bankruptcy for Japan Airlines sent the company’s shares down a staggering 24%.

Forex

In a low-volume day of trading, the Dollar ended with mixed results against the majors. The Euro slightly advanced against the greenback, not before an intraday drop below 1.4275, to end around 1.4340. The Pound was the best performer, rallying for seven hours in a row versus its US counterpart, to close around 1.6075. EUR/GBP topped just above 0.9050 before it dropped sharply to end around 0.8915. Mixed performances for commodity-linked currencies, as the Aussie dollar and the kiwi continued to rally but the Canadian dollar weakened for a second day against its US peer. USD/JPY extended its advance to close around 92.50, amid negative sentiment for the Yen on speculation about Japan Airlines’ bankruptcy and its potential effect on the Japanese economy.

Commodities

Crude Oil advanced about $1, closing around $79.30, as the weekly EIA report showed that US stockpiles decreased by 1.5 million barrels. Gold weakened for a second day, falling to $1092.50, and Silver extended losses as well, declining to $16.75.

The Day Ahead

In the last trading day of 2009 the main attraction will be the US Jobless Claims figures due at 13:30 GMT. Initial Jobless Claims are expected to show a rise to 460K in the week that ended on December the 26^th, from a previous 452K the week before.

Technical Analysis

EUR/AUD DAILY

Bullish Scenario– A daily closing below 1.5950 will trigger heavy selling pressure towards the next reliable support.

Target A– 1.58

Target B– 1.55

Bearish scenario– A failure to break below the 1.5950 level will send the cross north in a new bullish cycle.

Target A- 1.63

Target B– 1.6420

Daily Forex Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

© 2009 eToro Blog.

Written by ForexCycle.com

EURUSD has formed a short term cycle top at 1.4457 level on 4-hour chart. Range trading between 1.4218 and 1.4457 is expected in a couple of days. As long as 1.4457 resistance holds, the price action from 1.4218 is treated as consolidation of downtrend from 1.5144 and one more fall towards 1.4100 is still possible after consolidation. However, a break above 1.4457 will indicate that the fall from 1.5144 has completed at 1.4218 already, then further rally could be seen to 1.4500 or even higher.

By Fast Brokers – The Dollar is continuing its strong performance against the Yen as investors speculate that Japan Airlines will need to file for bankruptcy.  This piece of negative corporate news is fueling the Yen’s weakness as investors expect more tough times ahead for Japan’s economy.  Furthermore, the Yen has already been placed at a disadvantage by the BoJ’s recent promise to fight deflation, indicating a loose monetary policy for the foreseeable future.  That being said, the USD/JPY may refrain from tackling too many topside barriers due to light activity in the wake of a holiday-shortened week.  Investors that are in the game today are currently reacting to a stronger than expected Chicago PMI figure.  Another positive U.S. data release could help the USD/JPY tack onto intraday gains as the session progresses and investors digest the negative news concerning Japan Airlines.  Meanwhile, the data wire will continue to quiet down with weekly U.S. Unemployment Claims on deck as usual.  However, China will slip in some Manufacturing PMI data on January 1st, and any surprising developments could have an impact on the Yen as investors return to action next week.

Technically speaking, the USD/JPY has overcome more key technical levels, including our previous 2nd and 3rd tier downtrend lines along with October highs.  The currency pair is presently battling September highs.  The USD/JPY’s eclipse of our downtrend lines is sending a message that the currency pair could be in for further gains over the medium-term towards the highly psychological 100 area. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 12/29, 12/24, and 12/21 lows.  Furthermore, the highly psychological 90 level could serve as a strong support area should it be tested.

Present Price: 92.49

Resistances: 92.61, 92.80, 93.04, 93.30, 93.59, 93.85

Supports: 92.23, 92.01, 91.78, 91.60, 91.36, 91.13

Psychological: 90, September Highs

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The Cable was unable to hold onto its psychological 1.60 yesterday and proceeded to set new December lows as the Dollar strengthened across the board.  We notice the USD/JPY trading higher and the EUR/USD moving south, indicating the Dollar’s positive momentum is back in play.  Investors are likely indicating a preference for the Dollar since the Greenback’s uptrend has been positive throughout most of December, and with the data wire relative quiet for the holiday season investors seem to be reverting back to the Dollar’s more dominant momentum.  Meanwhile, investors are waiting for America’s upcoming Chicago PMI release.  The UK data wire is quiet until tomorrow’s Nationwide HPI figure, so added emphasis may be placed on the Chicago PMI data should it surprise in either direction.  That being said, activity could remain in a subdued state as investors take off for the New Year holiday.  Regardless, investors should keep an eye on the Cable’s interaction with September and October lows should they be tested.

Technically speaking, the Cable’s large pullback this month has sent the currency pair below some key technical levels.  Hence, it’s possible the Cable could be entering a more protracted downturn.  However, we’ll have to see whether the Dollar’s present weakness can accumulate and send the Cable back above some downtrend lines.  If not, the Cable does have some technical supports in the form of September and October lows.  As for the topside, the Cable faces multiple downtrend lines along with 12/29 and 12/22 highs.

Present Price: 1.5892

Resistances: 1.5912, 1.5929, 1.5967, 1.5995, 1.6026, 1.6067

Supports: 1.5875, 1.5845, 1.5821, 1.5793, 1.5796

Psychological: 1.60, September and October lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The EUR/USD is trading lower today on light holiday volume as the Dollar strengthens across the board.  Due to the relative lack of economic data and activity during a holiday-shortened week, it seems the Dollar is reverting to the positive momentum it has displayed throughout most of the month of December.  However, the EU did release its M3 Money Supply number, which turned negative for the first time since the inception of the global recession.  Hence, the ECB may be discouraged from tightening liquidity too soon since QE measures aren’t having their desired impact on the money supply.  Meanwhile, U.S. will release its Chicago PMI number in a few minutes.  A strong Chicago PMI figure could help the Dollar add onto intraday gains as investors gain confidence in the U.S. economy.  However, the EUR/USD may refrain from taking out important technical levels in either direction since the lack of volume and data may discourage investors from making bold decisions.  That being said, momentum does appear to remain to the downside in the EUR/USD as the currency pair approaches previous December lows.

Technically speaking, the EUR/USD faces multiple downtrend lines along with the psychological 1.45 level, 12/29, 12/23, and 12/18 highs.  Hence, some challenging near-term topside technicals are in place due to the EUR/USD’s recent deterioration.  As for the downside, the EUR/USD has technical cushions in the form of our 1st (off chart) and 2nd tier uptrend lines along with intraday and 12/22 lows.  However, the EUR/USD still trades well below our 3rd tier uptrend line that runs through July lows, meaning the currency pair could be in for more losses over the medium-term towards the psychological 1.40 area.

Present Price: 1.4314

Resistances: 1.4331, 1.4348, 1.4400, 1.4430, 1.4467, 1.4509

Supports: 1.4304, 1.4285, 1.4266, 1.4246, 1.4218, 1.4187

Psychological: 1.45, 1.40, December and September Lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Russell Glaser – Spot crude oil traders have been through a tumultuous year as they attempted to predict where prices were headed. Those that went long throughout the year may have seen their trading profits nearly double. Those that went short were not so fortunate. The next year will of course have its highs and lows, but the positive factors should out way the negatives, resulting in higher spot crude oil prices.

This past year the price of spot crude oil has risen an astonishing 70% after finishing the previous year down 52%. This loss was one of the sharpest one year declines in the history of the commodity. This is one of the remarkable aspects of the commodity. Very few financial instruments will allow for such price moves, something traders can appreciate.

The forecast could be rosy for next year’s spot crude oil prices. The global economy is on the rebound as most developed nations have exited the recession and their economies continue to expand. This should help boost the price of spot crude oil as future demand could remain strong. Future demand in China is expected to rise, as well as the demand in the world’s largest energy consuming economy, the United States. As no alternative energy source is on the horizon for quite some time, demand should continue to stay strong.

While OPEC continues to encourage its member states to limit their output, they have little ability to enforce these supply quotas. OPEC members that are dependent on a steady stream of oil dollars to ensure their despotic regimes remain in power have very little incentive to comply with OPEC quotas. This should keep the steady supply of oil flowing from these OPEC nations.

The Iranian issue still looms on the horizon and has the ability to ignite a sharp rise in the price of spot crude oil. Should sanctions fail to persuade the Iranian regime to abandon its nuclear program and military action be taken, we could see a spike in energy prices.

The threats to spot crude oil prices may also be a proponent. The global economy continues to expand as most central banks’ interest rates remain at all time lows. However, as inflationary pressures mount, central bankers will be forced tighten monetary policy. By turning off the spigot of cheap funding, perhaps siphoning off potential growth in the economy, the dollar may begin to appreciate. A rising dollar could take the bite out of a crude oil rally in 2010.

Despite the potential threats of higher interest rates and a stronger dollar, demand for crude should continue rise. Therefore, we could see spot crude oil trading near the $95 level this coming year.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By eToro

Recovery driven by Exports- In the third quarter Japan was able to slowly move into the recovery path with Q3 GDP rising 0.3% QoQ and industrial production stabilizing. The stabilization is mainly attributed to demand for Japanese exports which rebounded strongly. Japanese exports have lately shifted more and more towards Asian partners lead by China which is slowly overtaking demand from Japan’s classic partners the US and the EU. Since Asian emerging economies did not carry the same leverage as their western counterparts Asian economies remained rather resilient to the credit crisis with consumption still growing and with it demand for Goods. However the demand from China and the Asian tigers is only part of the story. It is the Global stimulus unprecedented in size, lifted Japanese exports not only to Asia but also to the US with the Cash for clunkers program supporting demand for Japanese autos. And indeed in December Japanese exports and industry indicators continued to recover with Merchandise trade balance at ¥ 492.4B, vehicle sales rising 36% YoY and Tertiary index rising a modest 0.5% MoM.

So where is the double dip risk coming from? The Japanese economy still faces serious headwinds for growth with negative CPI capping corporate profits and falling capital expenditures restraining job creation, both spurring fears of an unsustainable recovery. The last two quarters are considered to be the climax of the stimulus effect and still in Japan capital expenditures fell -24.8% YoY (for Q3) and CPI fell -1.9% YoY for the month of December. As  the global stimulus programs which led consumer demand so far begin to unwind and their effect  is slowly fading  Japanese exports  which in the last few quarters held the Japanese economy afloat  could fall back again and with it pull  the Japanese economy back into negative territory.

So how should you roll the dice?

Announcement of a large stimulus- The stimulus announced by the Government at the beginning of the month is considered by investors as an appetizer no more. However an announcement of a large scale stimulus could elevate sentiment for the Japanese economy and therefore weaken the Yen as it involves effective money printing and it will encourage Japanese investors to sell the Yen in favor of higher yielding currencies.

Watch out of Negative CPI– If CPI figures will continue surprise for the downside then Japanese bonds which currently yield close to zero will look attractive once again. This could lead Japanese investors to repatriate funds and create demand for the Yen once again.

Daily Forex Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

© 2009 eToro Blog.