Last week was indeed a volatile week due to the low liquidity. And as I have warned in my last Weekly Outlook report about the excessive market movement from my previous experiences over the U.S. Thanksgiving holidays, this Thanksgiving didn’t disappoint and certainly lived up to its reputation – and then some…
As a week that started with some mild risk appetite sentiment, but then the market started to take hints from FOMC Minutes on the Federal Reserve’s bearish tone over a continuing decline in the Dollar and unemployment rate, which echoed Fed. Fisher’s comments just a week ago, we saw USD getting sold off broadly against all majors, including the JPY…
Fast forward to the opening of market this Sunday, (it is important that we put current market condition in the right perspective) JPY has made a 14-year high against US Dollar, largely due to the unwillingness of the current Japanese regime to intervene, but some of the capital flows out of riskier assets into JPY for the end of year asset allocation might also be partially responsible.
As Japanese officials are worried about the impact of the strength in JPY to its economy and equity market, BOJ might not have much of a choice in maintaining its new non-intervention policy. We should be paying more attention at chatters from Japan over this issue, as BOJ usually does not intervene during a strong rally, but as the rally recedes and market retraces, that’s when BOJ jumps in…
Important news that helped to push JPY back to this high level has to do with the possible default of Dubai World. As I have tweeted about this over the holidays, there are several articles written by Bloomberg on this subject, market took this as a strong risk aversion event, and stock market crashed while JPY strengthened in this low liquidity trading condition. As rumors go, investors were speculating that this fiasco in Dubai might escalate into a sovereign bankruptcy, as Dubai World has over 80 Billion USD of liabilities. However, with UAE stepping in to support Dubai, market is quickly reversing from the exaggerated move that took place last week.
If you don’t know about Dubai world, here is a link on YouTube on their construction plan:
http://www.youtube.com/user/henryliuforex#p/f/0/kTyks-IRFPY
So what is likely to happen next after this huge and exaggerated Thanksgiving crash? I think we should remain cautious in the weeks to come as the liquidity starts to die down and big money moving out of the volatility into more secure instruments such as the JPY and USD. It is possible to see a limited reversal of what took place last week, but unless BOJ intervenes, we will probably not see the levels that JPY traded just a few weeks ago until 2010. However, the overall direction for the JPY is still unchanged in my opinion; if anything, I’m looking to buy more EUR/JPY or GBP/JPY at their recent support levels as I am certain of the market’s reversal and weaker JPY in the long term.
Here is what took place last week in the U.S. Equity Market:
- DJIA lost 0.1%
- S&P 500 remained unchanged.
- NASDAQ lost 0.4%
Even with the news out of Dubai shaking the global equity market, U.S. indexes remained strong, which is a positive sign over the resilience of the market. I think we should see very minimal effect from the Dubai news in the days to come, and most of that exaggerated movement last week should be reversed as the liquidity comes back to the market and investors find current levels undervalued.
Henry
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{ 5 comments… read them below or add one }
HENRY U TALK ABOUT USING TIME FILTER IN UR E-BOOK (NEWSPEOFITEER) I DONT KNOW IT HOW CAN I USE IT?
WHAT TIME IS THE LUNCH TIME U MENTION IN UR E-BOOK.
SINCE I JOIN TWITTER AM UNABLE TO GET U, AM A NIGERIAN
Send me an email about this.
henry [at] newsprofiteer [dot] com
Hi Henry,
thanks kindly for your post.
so, you don’t think that by next June we will see GY under 100 then? i think this may well happen – especially if you look at a weekly chart.
i think we will see some big moves in the first 3 quarters next year in all the currencies.
Anyway, have a great Christmas and new year.
vince
Vincent:
Nah, I don’t really think so. Don’t think the USD will depreciate that much or JPY appreciate another 50%, do you know what kind of strains it would put on the Japanese economy if the GY is trading under 100? It’s just nonsense.
Henry
great job congrat !
regards
salva