Quote:
Originally Posted by John Kicklighter
Well, I wouldn't say that risk sentiment has plunged. IMO, the capital markets are looking at a natural bear market, but not another round of credit-born panic selling - though that may come later.
Carry traders have been on the sidelines as they wait to see whether regulators efforts to prop up lenders, support consumers with bad loans and redefine regulation can come in time. With second quarter earnings starting in earnest for Financial firms next week, I think the clock is ticking. That works well with USDJPY, which can't go without a breakout for too much longer.
As for EURJPY, the ECB is still raising rates and has given no commentary suggesting they would stop. What's more, their own projections for growth show nothing of a recession - just a cooling off of the recent 15-year high. It's hard to generate contrarian momentum with prices near record highs and officials offering bullish forecasts.
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Well, if this is what the market believes, i think they are wrong.
It seems rather that it is just herd mentality because buying euros has been the thing to do over the last 8 years.
In the eurozone Italy and Spain are allready in recession. Germany which has distorted the figures for the region higher is going to have a contraction in q2 according to german officials, and France is not in good condition either. Other countries in EU are also in recession. it takes a lag of 12-18 months for monetary policy to feed through to the market, so even if the eu cuts this month which they wont, they wont impact until eu is deep in recession. The EU hasnt really solved the structural problems in the economy and once in recession it takes along time to get out in my opinion. with worldwide recession we will probably see a snapback in commodoties (barring a war in Iran), and likely negative inflation in Europe.
This is not being discounted for in the exchange rate.
On the yen side, Japan will soon be in recession and when the japanese do badly they repatriate money back home. We are on the verge of a systematic banking crisis. 100s of banks are going to go bankrupt and the vix will spike again very high.
It does not feel to me anymore that the pair will break 170 neccesarilly. A double top seems plausible. Do you have any long term targets of what eur/yen could go to if it breaks 170?
thanks, CH22
