May 10, 2010

Forex Crunch How Japan Took the Safe Haven Role from Switzerland

Forex Crunch How Japan Took the Safe Haven Role from Switzerland

How Japan Took the Safe Haven Role from Switzerland

Posted: 10 May 2010 02:00 AM PDT


The Swiss Franc didn’t work as a safe haven currency during the recent crisis – the dollar and the yen took this role. Here’s the story.

In the past, the Swiss Franc had a reputation as the No. 1 safe haven currency. This means that every time that there was an economic crisis, political instability, fear of recession or even an earthquake somewhere in the world, the Swiss Franc would strengthen. There were many good reasons for this:

Switzerland enjoys a strong industry and also enjoyed a sound financial sector. The famous Swiss banks are a big asset to the economy. But the recent financial crisis hit the banks – the US and the UK were badly hurt by the credit crunch, but also the Swiss banks suffered – the crisis was around the banking system.

As part of overhaul that came in the aftermath of the financial crisis, stronger regulation is sought everywhere. Policymakers aren’t only cracking down on their national banks, but also looking abroad. Tax havens in various countries are eyed by the lawmakers. In addition, the famous privacy of the Swiss banks also came under attack.

European countries such as Greece, Iceland, Spain, Portugal and even Italy and Britain had financial troubles. Switzerland’s location in the heart of Europe also undermined its status.

Seizing the Yen

With all the aforementioned reasons, traders looked to the East and saw the Japanese yen. It had a low value due to its low interest rate and the popular carry trade. As interest rates plunged worldwide, the yen lost its disadvantage.

Geography plays a significant role also here – Japan’s side of the world had less troubles. China’s boiling industry kept moving forward, especially after the huge stimulus package there. Also Australia didn’t enter a recession, and New Zealand suffered only a minor one.

The Japanese economy changed its image from deflationary, stagnated and boring to stable and sound. The carry trade lost its charm and the yen turned into the safe haven currency.

State of safe havens

It’s important to note that also the US dollar enjoys this status. This is somewhat absurd – the big bang of the crisis was the collapse of Lehman Brothers. The economy in the US took a big blow – a big jump in unemployment and an economy that deteriorate quickly.

Nevertheless, the status of the US as a superpower that will know how to get out of the trouble it had a big part in creating pushed the dollar higher as well. In many cases of bad figures, the dollar enjoyed the risk aversive trading, but the yen enjoyed it even more.

As the crisis unwinds, the Swissy is gaining strength and also stability – the ranges are becoming smaller, and it doesn’t suffer from big shocks. This may be a step towards regaining the safe haven status, but the road is still long. Rate hikes in Switzerland are essential for this process to continue.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex Daily Outlook – May 10 2010

Posted: 09 May 2010 02:00 PM PDT


As Britain faces a hung parliament the Bank of England interest rate decision is of major importance; the decision to maintain the interest rate continues to support the real economy, let’s see what other influential events await us today.

In Canada, Housing Starts, Released monthly, is expected to remain the same as in previous month 201,000.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, French Industrial Production shows an optimistic rise of 0.3% from the previous month.

Great news from Germany, the Trade Balance is expected to edge up by 2.3B, which has an overall positive effect on the market.

More in Germany, Final CPI measuring the change in the price of goods sold by wholesalers is expected to remain -0.1% as in previous month, while the Wholesale Price Index (WPI); is expected to drop by 1%.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, Official Bank Rate statement is issued, The Bank of England is foreseen to hold the interest rate at 0.50% and keep its Asset Purchase Facility at 200B, and supporting the real economy.

Later in Great Britain, British Retail Consortium (BRC); Retail Sales Monitor, the level of a diffusion index based on surveyed property surveyors; released monthly is expected to rise up to 12% from the previous 9%.

Finally in Britain, Royal Institution of Chartered Surveyors (RICS), measuring the change in the value of same-store sales at the retail level; Released monthly will probably remain around 4.4%.

Read more about the Pound in the GBP/USD forecast.

In Switzerland, State Secretariat for Economic Affairs (SECO); measuring the level of a composite index based on surveyed households; Released every 3 months, is expected to rise up to 2 from -7 Points indicates optimism in the overall market activity.

Australia and New Zealand Banking Group (ANZ); Measuring the change in the number of jobs advertised in the major daily newspapers and websites covering the capital cities; will probably remain around 1.8% as previous month.

For more on the Aussie, read the AUD/USD forecast.

In Japan, Monetary Policy Meeting Minutes is released by the Bank of Japan (BOJ); It’s a detailed record of the BOJ Policy Board’s meeting, providing in-depth insights into the economic conditions that influenced their decision on where to set interest rates;

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It's free.
posted by

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)