From European debt crisis to Middle East concerns to Japanese natural disaster and ensuing nuclear crisis, the markets have been pounded by a series of major and unforeseen events in the recent months and the circle continues with attention today returning to the ongoing problems out of troubles European names with Portugal today taking center stage.
Portugal 5-year CDS back up to 517bps, 10year bond at 7.4% yield up from 7.2% earlier this week while Ireland 5-year has returned to nearly 590bps over USTs with its benchmark 10 year bond trading at 9.5% up from 9.2% two days ago.
The European authorities are due, in the next couple of days, to wrap up a summit, where a final deal is expected on action to shore up support for the peripheral countries and for the monetary union as a whole.
Meanwhile, Portugal’s minority government faces stiff opposition to the implementation of further fiscal austerity measures meant to avoid a tapping of the EFSF rescue fund, something which appears increasing likely to occur. A defeat of these measures could force the minority government to resign and push the country close to needing rescue funds, according to statements by the Portuguese Finance Minister.

This could bring increased volatility to the Euro and push the credit default swaps levels higher in the near term, making all the more crucial the emergence of some consensus from the EU summit. The Euro is down 0.1% at 1.42/USD as regional equity markets closed in the red CAC -0.3%, FTSE -0.4%, DAX -0.5%

Sentiment shifted more positive after the G-7’s coordinated show of support to Japan via intervention in the FX market, pushing the JPY down to 80.9 from its record high reached yesterday, versus the USD of 76.25. The BOJ in agreement with the Japanese Ministry of Finance… intervening against the Yen, and were joined in the activity by the monetary authorities of the US, the UK, Canada, and the ECB. The G-7 nation’s issued a statement regarding that intervention activity, stating:

“ We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation …….. In response to recent movements in the exchange rate of the Yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada and the European Central Bank will join Japan, on March 18, 2001, in concerted intervention in exchange markets. As we long have stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and cooperate as appropriate “ ]

The BOJ’s intentions are very clear , the bank will do what it can to pump sufficient liquidity into the system and measuring the magnitude and scale of the disaster we can expect the BOJ to do that for a very long time .

The big reversals in the EURJPY, GBPJPY rates are evidence that the ECB has been in the market selling the Yen against the EUR given the violence with which the EUR/Yen cross has moved… from 107 to 114 .

Will they intervene again ?
Euro is up 1% versus the USD to 1.4158/USD as ECB’s continues to imply a near term interest rate hike.
We have a technical breakout in the Euro and trade above the 1.4216 would the start of a bull leg
Further boosting sentiment was the Fed’s declaration of the much improved capitalization positions of 19 major US banks, allowing many of these to buy back shares and issue dividends, declaring them healthy enough to do so.
Libya declared a ceasefire after the United Nations Security Council, approved a resolution giving authorization to the U.S., the U.K., France and Arab nations to protect civilians in Libya using all necessary measures. This approval allows coordinated military strikes to end the strife between opposition and government forces.

Despite the ceasefire, however, Gaddafi is trying to take Benghazi to create a “Fait Accompli” a reality on the ground and hide his forces among the civilians from airial attacks .
While sentiment has clearly improved, volatility remains the name of the game as the nuclear situation in Japan remains far from resolved and as potential military action has begun in Libya, with tensions lingering throughout the oil-exporting Middle East, posing greater upside risk to a supply shock for oil prices. Which has not materialised since WTI oil is off 0.7% so we will not be rushing to buy yet .
The S&P is up 0.4% to 1278 after ending yesterday at 1273 led by financials with the DJIA up 0.6%. The VIX is down to 23.8 from 26.4 yesterday.
WTI oil is off 0.7% to $100.7 p/b,
gold +0.95%, CRY +0.6%, and 10-year UST yields up to 3.27% on better sentiment towards the global economy, despite any definitive, significant positive development out of Japan with regards to the stability of the nuclear reactors there.

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While sentiment has clearly improved, volatility remains the name of the game as the nuclear situation in Japan remains far from resolved and as potential military action in Libya, with tensions lingering throughout the oil-rich Middle East, posing greater upside risk to a supply shock for oil prices. Japan’s top nuclear regulator raised its rating of the incident to 5 out of 7 on an international nuclear severity scale.
Delays or halts in production on a global scale is beginning to be announced by international companies –and some major US companies are expected to benefit from production setbacks in Japan such as Caterpillar, Ford,

No one in his right mind will go into the weekend hold large long Yen positions ; and the Yen to weaken significantly in the near months ahead against most of the majors, due to a stronger US economy and the massive liquidity injections and asset purchase program of the Bank of Japan on top of coordinated efforts by the G-7 to push their currencies higher or the JPY lower .
Reconstruction efforts in j no one in his right mind will go into the weekend hold large long Yen positions Japan should bring about increased economic activity and incite a recovery in the economy, combined with BOJ activity, over the next year, Japan potentially emerges from both deflation and prolonged economic stagnation.

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We closed the trade when the EURJPY started a corrective move breaking below several momentum high points … this was a time to take profits according to the Price Behavior Rules
We enter , hold and exit only based on rules .
We will be buying EURJPY again a nay pull back today

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This is the progress of the trade and why we held and when do we expect to close the trade

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In my previous blog of March 17th 2011, I pointed out you the recent performance of the Yen (moving from the 83-handle to the 77-handle at this time) and in the video recording attached I stated that we are going long the EURJPY above 110.56 which a trade back above the structure point at which it indicated the reversal point. as you see on the recording on the previous blog we took the EURJPY Long , we had a very low risk on the trade only 25 pips and we closed the trade this morning for a 1330 pips .
Today is Friday the Yen Bulls had a rude awakening and no one will dare to go home over the weekend long YEN and Short USD therefore I expect there will a lot of buying coming into the USD and the EUR versus the YEN and we will be timing our ourselves to capitalize on this Price Behaviour
See the video of the trade

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The recent performance of the Yen (moving from the 83-handle to the 78-handle at this time) is forcing the world authorities to react forcefully. News of the G-7 meeting tomorrow to determine support measures for crippled Japan gave a boost to markets today, which at mid-day, had reversed much if not all of yesterday’s losses. The group of seven nations to announce intervention policies focused on trying to WEAKEN the Yen in the days ahead. In addition, we continue to expect the BOJ to continue printing money at extraordinary rates (as it has done since the onset of the natural disaster), in a bid to fully liquefy the local markets

I expect the Yen to weaken meaningfully several months ahead against most of the majors, thanks to a stronger US economy and the massive liquidity injections and asset purchase program of the Bank of Japan on top of coordinated efforts by the G-7 to push the currency higher Oil has rallied up 2.95% to $100.95 p/b in WTI, gold +0.3%, CRB +2.8%, and 10-year UST yields up to 3.26% on better sentiment towards the global economy, despite any definitive, significant positive development out of Japan with regards to the stability of the nuclear reactors there
If liquidity is excessive, as it clearly appears to be at this time, the system will generate a backstop on equity valuations, and it will maintain the local bond markets very dynamic. This is exactly the policy that is needed from the monetary authority at this time, because the Japanese economy is in a free-fall, following the lack of sufficient energy generation and the threat of radioactive activity getting out of hand, a situation that keeps people inside their homes watching TV’s and hoarding cash.

News of the G-7 meeting tomorrow to determine support measures for crippled Japan gave a boost to markets today, which at mid-day, had reversed much if not all of yesterday’s losses.

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We had a big reversal in the AUSSIE and it had quite a big rally against the and the USD we were able to capture a 100 pips or a big figure in this move as the entry point was triggered form our last week trade plan
You can see the trade below

Have Great Weekend !

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A Dear Friend forwarded me this article courtesy of Global Macro Monitor

Kobe Earthquake’s Impact on the Nikkei and $/Yen

First, our thoughts and prayers are with the Japanese. They are a great nation and a good people. Watching this happen unfold in real time is stunning and we are hoping for a miracle that the loss of life is limited. We were living in and lost a house in a powerful L.A. quake and understand the fear when the earth shakes.

Though it is too early to assess the full damage of this quake, the following chart illustrates how the January 17, 1995 Kobe Earthquake, which measured 7.3 and killed 6,434 people, impacted the Nikkei and $/Yen. The Nikkei fell 24.6 percent before bottoming at the end of June.

The Yen actually strengthened 18 percent before the dollar hit the famous “Rubin bottom” in April 1995. The dollar was already in downtrend and further weakened by the U.S. bailout of the Mexico when the Kobe quake hit, so it is difficult to fully extract its true impact on the exchange rate. (click here if chart is not observable)

Shared By Mike Baghdady of Training Traders. Please share this post too.

Moody’s downgraded Spain’s LT FC sovereign rating to Aa2 outlook negative and German exports disappointed, falling 1% in January the EurUSD sold off and is trading at 1.3790 /USD, -0.75%.. signaling a trend change as it the reversal price point , the Euro is set to see more volatility in the near term as EU leaders meet later this month; anything short of a clear definitive comprehensive package of measures to put the debt crisis to bed will put severe pressure on the common currency and CDS levels for peripheral names.

The USD index has turned around and crossed above the structure point at 77.2 and gained 0.6%, we have been bullish on the USD for the last few weeks as per my previous posts; the AUDUSD and other commodity exporter’s currencies are declining as fears regarding the global economy took center stage

The S&P is down 1.5%, DJIA -1.4%, as Europe’s Stoxx 50 -1% , the US equities Markets have broken through short term structure and that would lead to further decline on the back of several pieces of bearish data from the US and it also identifies for us the reversal point. The negative sentiment about Europe, and China, sent the markets tumbling and taking off the risk trade.

I am doing a seminar on FXSTREET on March the 14th at 12:00 GMT

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