The Real Story Here is USDJPY & Asia
The increase in volatility in the currency markets didn’t start in GBPUSD today, but in USDJPY last week. On October 9 USDJPY jumped sharply on talk of Asian central bank intervention — see chart below.
Despite the overall weakness in the Greenback, and the long-term bull market in the Yen, we would not be keen on pressing USDJPY below the 2008 low for a couple of reasons, least of which is being wrong. Most of which is concern that the overall drop in Chinese exports over the last 12 months really isn’t being offset by internal demand. Today there was an interesting article on www.chinaveiw.cn, talking about that countries production overcapacity. Overcapacity meaning when a company or industry continues to manufacture products despite little demand and less sales. The last paragraph of the article summed up concerns succinctly, and pointed out why one might not want to press dollar shorts in Asian currencies:
“China has achieved preliminary progresses in fighting the global economic downturn, but the foundation for economic recovery is not stable yet and overcapacity might lead to bankruptcy, unemployment and bad bank loans if it was not checked in time…” For the entire article go to:
http://news.xinhuanet.com/english/2009-10/15/content_12242072.htm
Sure we have quasi-bubbles in AUDUSD and EURUSD, but these could be sideshows compared to the currency scramble if a wheel falls of the Chinese wagon…
Jay Norris
www.trading-u.com
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