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Euro at 1.35, USD/JPY Breaks 103 - What’s Going On?
The US’ $700B bailout plan will not do the trick - at least that’s
how the currency market feels this morning. Deleveraging or the
liquidation of risk is happening on a global scale as investors
question if guaranteeing funds and bailing out banks are the right
prescriptions for the credit crisis. Every single financial market from
currencies to stocks, bond and commodities tells us that this is a
crisis of confidence. Carry trades have sold off across the board, gold
prices jumped $24, oil prices are trading below $90 a barrel while
LIBOR rates continue to rise. In response to the rise in risk aversion, the Treasury increased
their auction sizes while the Fed will begin to pay interest on
required and excess bank reserves. Unfortunately instead of boosting
confidence like the US officials may have hoped, it is boosting risk
aversion. No matter what government officials are doing, investors are
not buying into it. This morning the German government moved to
guarantee all deposits, but rather than buying Euros on the
announcement, investors sold it as the destruction of balance sheets
and slower global growth becomes everyone’s top concern. As central bank officials start running out of options, coordinated easing may be their only choice. USD/JPY Headed for 100 For stock traders, it is time to get out your Dow 9000 hats and for
currency traders, this means that it is time to think about 100
USD/JPY. The Dow Jones Industrial Average is now within a whisker of
the 10,000 mark and I have long argued that Dow 10,000 would mean 100
in USD/JPY. When the Japanese government bailed out their local banks
by buying up the bad debt in 1996, the Japanese Yen proceeded to fall
12 percent over the next 12 months. We first wrote about this in mid September, at which time we said we expected a 5 percent drop in USD/JPY – now we have another 2 percent drop to go. How Much Further Can the Euro Fall? The Euro on the other hand came under further selling pressure as
the region’s own problems come to the forefront. There was a
fundamental shift in the outlook for the EUR/USD last week after ECB
President Trichet signaled to the markets that he is ready to cut
interest rates. At this point, it is realistic to expect that the ECB
to ease monetary policy in November if not sooner. by Kathy Lien (Kathy Lien) Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital. |
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