... even as Wall Street continues to call the shots
IT WAS a hairy week in financial markets, to say the least, with daily worries about the extent of losses or failures arising from US sub-prime mortgage debt defaults keeping financial market players on the edge of their seats.
Most of the data out of the US over the past week unfortunately did nothing to calm frazzled nerves - except for those who had the foresight to buy into US Treasuries and other prominent safe-refuge candidates such as gold, the Swiss franc or euro. Elsewhere, the Japanese yen again benefited from the sharp spike in volatility, thanks to more hasty unwinding of speculative carry trade positions, while erstwhile favourites such as the New Zealand dollar and selected Asian currencies had to take it squarely on the chin.
In other words, the US dollar wasn't universally weak just because of the week's Wall Street rout. For example, it has actually finished the past week stronger versus earlier Asian favourites like the Indonesian rupiah, Thai baht, Malaysian ringgit and even the Singapore dollar as stock markets in the region withered.
And yes, it's true that things had calmed down considerably yesterday, with Wall Street able to rebound quite strongly overnight despite Monday evening news that yet another US mortgage firm had filed for bankruptcy protection.
However, there are also those who continue to caution that nobody knows for sure yet if things might get worse before they get better - fearing that it was perhaps only the calm before further potential storms.
At the very least, there was a perfect excuse to sit things out before the premier financial event of the week - namely, yesterday evening's post-interest rate meeting pronouncements from the US Federal Reserve Bank's top decision-makers. All the more so with trading rooms unlikely to be operating at full tilt until the summer holidays are over at the end of this month.
Where, then, does that leave us? To start with, very few expect the Fed's new boss Ben Bernanke to deliver any kind of a meaningful respite in the form of any kind of 'Greenspan put' - meaning a substantive assurance that the Fed will come in with ample liquidity to prevent any Wall Street collapse.
Yes, the closely watched FOMC statement may include some oblique reassurances that the US economy won't be derailed by the messy US housing market and its related finances. Over and above that, however, the backdrop of a weak US dollar and still lofty energy prices (the week's losses there notwithstanding) continue to dictate that the Fed can't just take its foot off the monetary pedal either.
Beyond that, an otherwise sparse week for data seems to put the focus squarely back onto Wall Street moves. If, in turn, all we get to see on that front is nervous range trading, then this may suggest jittery range trading on the currency front as well.
Despite the foregoing, we are sure more stout-hearted players with an ability to look beyond the week's shenanigans will be starting to ask themselves where they should start to rebuild positions for the longer haul.
In that respect at least, we can offer a few significant observations from the past week on the numbers front.
In terms of naked US dollar exposure, we can at least tell our readers that the greenback remains in danger of more relapses if it cannot make any meaningful headway above 120 yen, 1.2 Swiss francs, S$1.52, and the 80.60-80 region on a broader indexed basis.
On another important front, we believe that the more adventurous carry trade players with the stamina to sit things out for the longer haul will start to rebuild positions - or have already done so over the past week - at key yen supports such as those highlighted last week.
Yesterday, favourite candidates such as the euro, Australian dollar, New Zealand dollar and sterling pound were trading back above 163 yen, 101 yen, 90 yen and 240 yen respectively. But over the past week, the latter three did at one point test - or even fall through - last week's suggested support areas of 100 yen, 89 yen, and 237.50-70 yen per Australian dollar, New Zealand dollar and British pound respectively.
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