Forex Investment and Currency Trading

Trading Strategy – These last few weeks have been full of unprecedented economic activity.  In FX this translates to the “risky asset” trade protection unwind.  So AUD/JPY, NZD/CHF –those were the big movers overnight.  No coincidence that this is also a “carry-trade” set which also correlated strongly to FX Option implied volatility.  JPY and AUD had huge moves overnight but their implied volatility fell – suggesting some view going forward that we are in a consolidation phase.  If you speak to anyone about how to fix this mess the first requirement is time.  Patience is required to see if the multiple programs and tools applied will work – so today may just be about waiting for something good to happen.  Overnight IBM pre-announced earnings and that was good.  But the illness of money markets is still clear – with most LIBOR fixes significantly higher today.  Bank to bank credit risk remains a significant impediment to a normal functioning market.  The thrashing of equities seems to have slowed – or at least revert to something less than panic – but value investing requires a base line in the cost of future funding which has become unclear at best.  As private capital becomes a function of public money – the risks of sovereign debt will begin to be the focus rather than private banks and their ability to pay.  But for the day – we will probably enjoy a modest respite from the frantic and unpleasant panic.  As the dust settles expect the Western Front to remain the key issue – as many doubt the ability of the EUR to really rally much at all – even to 1.3850 where we were Friday last week.  The EUR/JPY bounce seems sufficient – the driver now goes to European fixes for its own economy and financial crisis.

CURRENCIES 
EUR/USD 1.3581    -  1.3785     Last:   1.3695
USD/JPY 98.92     -  101.39     Last:   100.68
EUR/JPY 134.96    -  139.68     Last:   137.87
GBP/USD 1.7174    -  1.7380     Last:   1.7301
EUR/GBP 0.78850  -  0.79583     Last:   0.7916
USD/CHF 1.1212    -  1.1312     Last:   1.1299
EUR/CHF 1.5356    -  1.5506     Last:   1.5473
AUD/USD 0.6630    -  0.7107     Last:   0.6992
USD/CAD 1.1186    -  1.1294     Last:   1.1228
NZD/USD 0.5909    -  0.6257     Last:   0.6183

FLOWS

Nikkei 9,157 down 0.5%% Topix 905  up 0.5 % Hang Seng  15940 up 3.31%
ASX 200 4320 down 67.20  Kospi 1294 up 0.64%
10yr JGB Price 100.477 (-.675) Yield 1.445 (+8bp) 10yr ACGB Price 101.408 (-1.29) Yield 5.626 (-4bp)

NEWS

New York Times: U.S. May Take Ownership Stake in Banks - Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials. Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.
Bloomberg: South Korea, Hong Kong, Taiwan Cut Rates, Joining Global Action - South Korea, Taiwan and Hong Kong cut interest rates a day after reductions by the U.S., Europe and China to stem damage from the global financial crisis. The Bank of Korea and Taiwan’s central bank lowered their rates by a quarter of a percentage point and Hong Kong cut its benchmark to 2 percent. The Bank of Japan, which kept its policy rate at 0.5 percent this week, pumped 2 trillion yen ($20 billion) into the financial system.