Carry Trades Carry On

Asia Market Update

Carry Trades Carry On

JPY starts the week on the back foot as jobs data fuels risk appetite: EUR/JPY held above former resistance at 165.40, rising to the highest level since July 25 (above 165.60). USD/JPY stayed above 117.00 for the entire Asian session, with traders keeping an eye on Friday's high at 117.2, the next upside target. Between 17:00 ET and 23:03 ET: USD/JPY +0.11%, GBP/JPY +0.12%, AUD/JPY +0.49%, NZD/JPY +0.61%, EUR/JPY +0.13%

IMF's Rato said that the USD is 'undervalued' on many measures used by the IMF to evaluate currencies. Rato said that the 'normalization of monetary policy in Japan is an important, medium-term objective', adding that China needs to do more on CNY revaluation. Rato expects the credit crisis to last until 2008.

Data reaffirms the Reserve Bank of Australia's tightening bias: (AU SEPT AIG PERFORMANCE OF CONSTRUCTION INDEX: 55.2 V 48.4 prior, highest reading since June 2006) AiG said that they see a pickup in demand for new houses, but added that they expect the Aussie housing market to remain under pressure. The consensus is emerging that, with a better U.S. outlook, we will see markets factor in at least one RBA rate hike in Q4, and maybe another in Q1.

Forex: The NZD and AUD both moved higher on carry trade demand, with the NZD outperforming the AUD in Asia. Traders said NZD/USD took out stops above 0.7640, while AUD/USD took out some stops above 0.9010. EUR/USD couldn't move above 1.4150 with any conviction, capped by hedge fund selling. Traders are awaiting a meeting of euro zone finance ministers in Luxembourg later in the day, with some analysts suggesting a single strong message could put a clear top in EUR/USD and EUR/JPY. The CAD was slightly softer as oil prices drifted lower at the start of the week, but analysts expect the currency to remain firm with a Bank of Canada rate cut seen less likely after Friday's jobs data. Between 17:00 ET and 23:05 ET: NZD/AUD +0.14%, USD/CHF -0.07%, USD/CAD +0.16%, AUD/USD +0.40%, NZD/USD +0.56%, CHF/JPY +0.16%.

Equities: Asian stock markets tracked the data-inspired gains on Wall Street, with both Australia's ASX and South Korea's KOSPI indices hitting all-time intraday highs. Chinese shares are higher by more than 1.5% following last week's national holidays. The Japanese stock market was closed for a national holiday. At 22:56 ET, the ASX +1.13% and KOSPI +0.97%.

Commodities: Crude oil drifted lower by -0.39% between 18:00 ET and 22:57 ET (last quoted at $80.90/bbl). 'We'll trade on both sides (of $80) until we get a clearer picture of the economic outlook or a clearer picture of when winter is going to begin,' said Phil Flynn of Alaron Trading. Gold analysts suggest that the that long-liquidation pullback in gold last week may leave gold technically 'healthier' for a possible rebound this week, but the commodity lacked direction and closely tracked USD movement during today's Asian session.

By: Trade The News Staff

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