Forex Investment and Currency Trading

YEN 1 – 3 Month Outlook
JPY was the third worst performing G10 currency (after NZD and CAD) through the course of June, with USD/JPY hitting a succession of three months highs and EUR/JPY hitting a new record high before correcting somewhat lower at the tail end of the month. In part, JPY weakness seems to reflect the currency adopting the role of “path of least resistance” for USD appreciation in the way EUR did when USD was falling. USD’s appreciation since March has in part reflected the increasingly hawkish stance of the Fed and this has been almost matched by [...]

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The USD Index rallied about 1% last week as expectations for Fed easing have stabilized and the employment decline was not as large as expected. While the Fed want to end the easing process, expectations for tightening before yearend remain excessive. While the USD has probably bottomed, further gains in the near term remain unlikely, and market continues to expect the downside USD adjustment will increasingly shift toward Asian currencies.
Weaker Euro zone economic reports have taken the trade-weighted EUR down about 2% from its April 22 cycle high. While the economic momentum in 2Q 2008 is clearly softer, it will [...]

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Contrary to anecdotal evidence, Japanese retail investors are still piling into overseas bonds.
The more interesting retail story, however, is the recent concentration of JPY leveraged shorts in NZD/JPY. Unwinding of these positions will compound AUD/NZD strength on the back of real money reallocation.
Retail investors still selling JPY
JPY’s resilience in recent months – JPY is the second best performing G10 currency after CHF year-to-date - is frequently attributed to Japanese retail investors reversing purchases on overseas assets as signs of domestic economic weakness have reduced risk tolerance. Recent flows data, however, provide no support for this hypothesis – retail investors have [...]

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The outbreak of the credit crisis has helped to boost the trade-weighted Japanese yen (JPY). While interest rates remain at ultra-low levels, it will be difficult for the JPY to rally much further on a tradeweighted basis. However, against the USD, the yield differential has narrowed substantially. The carry trade has been a major factor for the JPY. Japanese institutional and retail investors are expected to continue to put money into higher-yielding assets abroad. The latest anecdotal evidence is that the appetite for this is currently low given the risk of investing amid the current global turmoil. Longer term, these [...]

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