Will the Carry Trade unwind?
Last week we saw the JPY gain against all 16 major currencies and we are now sitting at a critical point technically. The fundamentals do appear to be coming together as Zoltan has been saying, for this to be the year of the Yen. In January of this year, Zoltan Vass (our Chief Economist and Chairman), delivered a presentation on what to expect for the year. He stated $140 on the Euro was in sight and that this would be the year for the Yen, especially in the second half.  Well we are now just shy of $1.50 on the Euro and of course we know what happened in August on the JPY pairs. What’s next?

Last week I wrote about how we need to stay focused on the JPY as we are in a range that when we break out, we will likely see the longer term direction immerge. Specifically I said watch the EUR/JPY as our barometer for other moves. Look at where we are now and ask yourself what is likely to happen when institutional traders return to trading this coming Sunday/Monday. The added volume that was absent due to the US Holiday will undoubtedly start some volatility in all equity and Forex markets. We made it below the first important barrier of 160.50 and although we quickly retreated, the next important barrier is well within striking distance. The technical void below 158.72 provides fertile ground for further decline. BTW… take a look at the potential Head and Shoulders pattern on the GBP/JPY. What would a break below 220.00 produce?

The politics of a $150 Euro
Something I have been watching for this week is how the Euro Zone exporters are reacting to such a high Euro. In the news this week from London, comes a report that Airbus, the second largest Airliner manufacturer has done a flip flop on how it is affected by such a strong Euro and British Pound. A week ago their statement was that it was not such a bid deal and now this week, they claim to be losing as the Euro rises and the Dollar falls. Airbus is in a precarious place right now having just started delivery of the worlds newest and largest Jumbo liner, 2 years latter than promised with of course extreme overruns and the threat of lost orders. What are the European politicians going to do as Airbus’ profit and viability becomes jeopardized as the Euro continues to climb. Airbus is an enormous company and is a conglomerate of the assimilation of many of Europe’s aeronautics’ businesses, that represents exactly what the Euro Zone and the Euro itself is supposed to be. A sudden decline or at worst a failure of such a company at this time would potentially undermine a great deal of the recent gains made economically by the Euro Zone. I think at this time we will see European politicians start to support the idea of a reduction in the Euro’s value fearing too much pressure on the local exporters.

Politics of an interest rate change in the USA
The other thing that will be brewing over the next week or so is the rumors surrounding the next FOMC meeting and subsequent interest rate decision. In the week just passed we have seem the sentiment flip-flop between keeping the rate steady and decreasing it further. At this time the fears seem to be about a US recession so a further reduction in the rate is favored (at least for now). Let’s see how this enters the mix if the carry trade bottom falls out and whether the Euro Zone considers policy to reduce the value of the Euro.

A quick word on the USD/CAD
Well, we do seem to have put in a Key reversal. The question here is; have we seen the significant turn. My perspective on this as a trader is to ask what is going on with the Loonie that makes it different from other currencies trading against the USD. Virtually all other Dollars pairs have gained or at least not weakened anything close to what the CAD has in the past two weeks. This could be the beginning of trader sentiment towards a possible re-strengthening of the USD. After all, Oil and Gold are making records while the Canadian retreats. This is completely different to what we had seen over the previous 12 months. What is underlying here in the psyche of trader mentality of this pair? Will we look back on this move and say; this pairs was giving us clues as to what was to come on other USD pairs.

I do hope we you have all had a great Thanksgiving.

Pierre Charlebois – VP Trading Solutions

EUR/USD
RESISTANCE: 1.4965 – ALL TIME HIGH, 1.5000
SUPPORT: 1.4705
SENTIMENT: UPTREND RELENTLESS, BUT STARTS WANING, CORRECTION IS DUE
 
GBP/USD
RESISTANCE: 2.0800
SUPPORT: 2.0355
SENTIMENT: MIXED TO BEARISH
 
USD/JPY
RESISTANCE: 110.55
SUPPORT: 106.50
SENTIMENT: BEARISH
 
USD/CHF
RESISTANCE: 1.1145
SUPPORT:1.0895
SENTIMENT: MIXED, SEEMS BOTTOMING
 
USD/CAD
RESISTANCE: 1.0095
SUPPORT: 0.9705
SENTIMENT: BULLISH
 
AUD/USD
RESISTANCE: 0.8995
SUPPORT: 0.8540
SENTIMENT: BEARISH
 
GBP/JPY
RESISTANCE: 225.85
SUPPORT:217.40
SENTIMENT: BEARISH
 
EUR/JPY
RESISTANCE: 162.60
SUPPORT:156.30
SENTIMENT:BEARISH