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)

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The Euro was strengthening this morning and the Yen is weak , the trades today should be focused on Long EuroUsd , EURJPY , Long GBPJPY
see the trades below

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The Long weekend is ahead

I wish you all a happy labour day vacation, it’s a great time to relax and recharge your batteries, tonight and tomorrow most of the traders have squared the positions going into this long holiday and no one will be left at the trading desks except the ones that have to man these desks and they are not going to commit to one side of the market or the other, they are there only to make market.

I have made some trading suggestions on the video
Trading will be extremely thin, no volume and therefore the moves could be volatile and short lived, it is usually a high risk trading environment and if you do not have to trade tonight or Friday then enjoy your long weekend.

Aside from that ,the applications for jobless benefits fell by 31,000, the first decline in a month, to 473,000 in the week ended Aug. 21, The Labour Department figures showed today in Washington.

The total number of people receiving government payments exceeded 10 million for the first time in four months, reflecting an increase in those getting extended benefits. The average number of claims over the past month climbed to the highest level since November even as the latest reading provided some relief to the negative economic data in recent weeks.

What surprises me to a great extend is the drumbeat and importance given to this number , everyone is forgetting the seasonality of this number and the time of year , we are in August everyone is on vacation and no company is really looking into hiring , the real test for the unemployment numbers should be in the 4th quarter when companies begin hiring.

I have made some trading suggestions on the video blog

The yen and dollar fell against most major currencies on speculation talks about hints from Japanese policymakers they may curb the advance of the yen.

Also the prospect of the Swiss National Bank stepping to counter gains in the franc , even though the SNB has not been successful in the past , it seems that the Franc is perceived currently as a save haven .
This failure of the SNB to stem the rise of the Swiss Franc has been very costly and they are sitting on large paper losses , that may be one of the reason that the BOJ has not stepped in yet and they may be looking at other easing options .

Central bankers from around the world will signal at a meeting starting today their intention to maintain stimulus measures to sustain the global recovery.

The yen extended losses as more Japanese companies said the currency’s recent strength was damaging exports, adding pressure on the authorities to limit its gains.

The Yen and the Dollar weakened for a second day versus the euro as Asian and European stocks advanced, spurring demand for higher-yielding assets.

Treasuries rose yesterday, before a U.S. report the extra yield increase investors demand to hold 30-year bonds over 2-year notes shrank to the lowest level since September 2009 which is supportive to the US dollar as traders need to buy the Dollar in order to purchase these high yielding treasuries

The Japanese government seemed to have been able to talk down the Yen today, it is by no means a trend change but it represent the sentiment that the traders are feeling at the moment which is being very cautious and are trying to be one step ahead of any possible intervention, therefore they are quick to react to any sign on selling coming into the market or any large size block trades.
The ministry of finance has instructed the Japanese investors to liquidate their margined “Carry Trades “ and with bring back to Japan by the end of this fiscal year !
This is the first actual action the government has implemented prior to actual intervention
This reversal in today’s price action that has been witnessed across all the Yen Crosses could be the beginning of a short covering rally and I would not stand in the face of any short covering move , so either I will take profits or I can begin to take small long position after I have a confirmation that this rally is continuing.