After more than a year f getting benefits from the unwinding of carry trade the Japanese yen has become separated reflecting the Japanese economic fundamentals losing ground versus the greenback which joined the Japanese yen the very low interest rate levels versus the high yielding currencies. The Japanese yen has started to reflect the current weakness and dovish growth outlook following US. The greenback could break 95 versus the Japanese yen getting momentum to reach 97 in the Japanese session. The Japanese leading exporting companies can react positively to this slump of the Japanese yen cross the broad. This sentiment can put the Japanese yen under pressure as it should not get same benefits from the times of missing trust in the equities markets as it was the main funding currency of the carry trades transactions on its very low interest rate level. Currently, the greenback is joining it in taking this role of funding the carry trades and the other European currencies are in the same way of monetary easing for pushing funding liquidity in their economies nerves to stimulate growth and this can put further pressure on the Japanese yen versus these currencies in the times of optimism for taking risks than before. The British pound is now trading above 140 versus the yen and also the single currency has become well supported versus it trading above 124 in spite of its suffering from the banking and financial loses on the credit crisis impact on the European eastern economies and from another side the single currency interest rate outlook differential versus the greenback is still putting weights on it as we wait another .5% ECB cut next month and the interest rate in US has become nearly 0% and there are no further rooms for monetary easing aggressively in US to put weight on the greenback.
The US equity market could retrace some of its Tuesday loses, in spite of the very week number of the US consumers confidence number which reached 25 in Feb and the market was expecting a decreasing to just 36 from 37.7 in Jan. The market has got some optimism from Ben Bernenke's talking today that there is no serious need for banks nationalization right now but he confess that the growth downside risks are still putting pressure on the economy and the government should react to stabilize the economy and the financial system to have a recovery next year. Dow has met strong support from its session beginning minutes after Tuesday slump and it could closed up by 3.32% at 7350 and it is expected to face a strong resistance to get over 7550.
Best wishes
FX Consultant Walid Salah El Din E-Mail: snipped-for-privacy@fx-recommends.com