Well this week in the markets should be an interesting one. First and foremost in investors’ minds will be the “New Credit Crisis”, with the seizure of IndyMac Friday and the Fannie/Freddie meltdown. Which really shows that despite historical moves by the Fed, the credit crisis has still never improved from the last 12 months.
The Fed, they’ve shot their load, they don’t have anymore bullets left. Lowering rates again is out of the question because of inflation. Raising rates is out because of slow growth and more importantly, the ongoing and growing in my view, crisis in the credit markets. all this leads to VIX index. The index that tracks market volatility. You see there is a correlation between the VIX and the Japanese Yen as well as the Swiss Franc, in my opinion. As the VIZ rises the the carry trade unwinds, that is currencies like the Yen and Swiss Franc go up in value.
Therefore, I expect the Yen(JPY) related currency pairs to all drop at least into the US morning, when some type of announcement from the Government needs to be made regarding Fannie and Freddie.
Our recommendation is to short the following pairs: USD/JPY,GBP/JPY, EUR/JPY and the CAD/JPY, as well as the USD/CHF. Our long recommendations are as follows: EUR/USD, EUR/CAD, EUR/AUD, AND EUR/NZD. We’re bullish on th Euro, “Ya think!!”, at least for the Asian and London sessions. Although we believe EUR/USD will probaly make an all time high this week. although whether it can hold on to it is unsure.
Francesco Boca
By: Francesco Boca
Posted in Articles
