US Dollar, Yen See Inflows as Investors Lose Appetite for Risk
Tough talk from Obama and his administration reverses what was a short-term "risk-on" condition around the globe.
OBSERVATIONS ON THE GLOBAL MARKETS THIS WEEK:
- It has been "risk on" for the most part with S&P e-Mini futures (ES) jammed higher since Sunday night and key risk currencies like AUD/JPY and EUR/JPY seeing major buying. That changed Tuesday morning, however, with the Syria chatter heating up.
- Syria looked like it would take a backseat to data points this week up until Congress votes and/or Obama acts. However, with the Obama administration out on the airwaves talking tough, everyone's level of trepidation is being raised once again.
Traders and investors may tread gently until one or all of the following occurs:
- Syria discussions calm down;
- the flurry of interest rate announcements from global central bankers later this week comes and goes; and / or
- the monthly jobs report here in the US on Friday comes and goes.
- The yen was being shunned as investors were pulling money out of safety assets and pushing it into risk assets. The US dollar was seeing only a little of that, but is being buoyed by tapering talk and higher rates. This shift reversed itself Tuesday, however.
- Ten-year Treasury yield: It barely held support at 2.715% last week, but it held nonetheless. A run in yields up to the Fibonacci projected 3.021% may now be underway (which is bullish for risk assets in the short term as it is unlikely that rates would shoot higher like that if stocks are being sold off).
- High yield: SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK) is still trading bearishly, failing to confirm equities' bounce.
- Emerging markets bonds: Like JNK, iShares JPMorgan USD Emerging Market Bond Fund ETF (NYSEARCA:EMB) is technically broken as well; it is headed to 102.50 from its current level of 105.25.
- US dollar: It is ripping higher on the resurgent tapering talk. The DXY has already taken out "correction resistance" at 82.08, so this is no longer to be considered a short-term correction. We should, in theory, see a rally in the DXY up to as high as 85 in the coming weeks or months.
- Euro: It failed at 1.3409 resistance and is getting crushed. Will the entire head-and-shoulders formation end up playing out as I've suggested for months now? The euro is short-term oversold (see green box), so a bounce should be expected and sold into.
- Yen: It was suddenly seeing massive outflows as noted above. However, renewed Syrian concerns have some folks running for safety once again. I will respect the price action and close out all bullish yen positions in my models / portfolios if USD/JPY closes above 100.203 -- but not before then.
- Aussie dollar: There was a corrective rally after 5 waves lower were completed in the short term; fundamentally, the Aussie dollar is rallying due to a perceived hawkish change in stance on the part of the Reserve Bank of Australia in its interest rate policy statement yesterday. Will this be another instance of "hope versus reality" as I pointed out recently?
Were it not for the Syrian situation, I am fairly convinced that we would be seeing a continued "risk-on" condition in the global markets. My call, however, would not be for a runaway rally. Rather, I saw short-term / limited upside in stocks (1,690 was my target for the S&P futures) and risk currencies (as reflected in my Aussie dollar comments). I definitely felt / feel, though, that another fairly nasty down-leg in risk would / will take place once the upside correction played out (perhaps due to tapering, budget battles, Ben Bernanke successor talks, or international goings on; check this piece out by Nouriel Roubini for more on the risks we face. Now, my question is whether we will even get to enjoy the projected bounce.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter