Forex Blog

U.S. macroeconomical data releases get a little less overoptimistic while the subprime lending crisis takes its toll and the carry trade is uncertain. This is the second week after a major carry trade crisis when the major indicators of carry trade, like GBP/JPY and EUR/JPY, are trading flat without any signs of the future for this type of financial trading. But worser U.S. economical indicators hint for some major change in the global financial kitchen.
Global domestic product for the second quarter of the 2007 showed a big increase compared to first quarter (which has been a big disappointment) but still 0.1% lower of 4.1% expected.
Initial jobless claims for the previous week came out to be 334,000. Not only it is 14k higher than experts have been expecting, but it is also a record high number since the April of this year. This may lead to the lower August non-farm payrolls report and higher unemployment rate for that month.

Global stocks markets calmed by central banks’ generous currency interventions last week are doing quite well so far. EUR/USD and other currency pairs influenced by carry trade and subprime lending crisis chain reaction (mostly EUR/JPY and GBP/JPY) also don’t jump madly through and out the support and resistance levels anymore. But what will happen next? Will the markets just soak up the liquidity, thrown in by Fed and other countries’ financial authorities, and crisis will go on? Or will the carry trade trade go on, feeding credit sector with cheap JPY money and pushing EUR/USD, EUR/JPY and GBP/JPY to the new historical maximums?

Current situation doesn’t hint in favor of any possible outcome - both stock markets and currency pairs are slow. In my opinion, the best way to understand the next movement is to look on the Japanese Nikkei market index. So far (today and yesterday), it has been increasing slightly, signaling the normalization of market situation. A sharp fall or rise on Nikkei can mean a faster crisis unveiling (in case of fall) or a return to carry trade dominance markets (in case of rise, not necessarily sharp, strong and long growth signals that too).

Other good method is a GBP/JPY pair, which stabilized in 220-230 range. Breaking this range at 220 level will most probably signalize a continuous bearish trend in EUR/USD, EUR/JPY, GBP/JPY and global stock markets too. Breaking the 230 level can be a sign of the return to bullish trend on those currencies and other financial markets.

EUR/USD reached its two month minimum and almost broker out of its long-term bullish trend today. World stocks markets continue to fall with the main reason lying in panic caused by the crisis in subprime lending U.S. sector. Cashing out of stocks papers causes also carry trade retreating with a huge buying back of JPY and USD (in a lesser dimension) for other currencies - thus the rally of JPY and USD. Even bad economical news from U.S. don’t stop from buying it for Euro.
Weekly employment data showed a little increase of the initial jobless claims - 322k from 316k previous week, while analysts expected a small decrease.
Housing data continue to come out worse and worse - housing starts came out to be 1381,000, while building permits - at 1373k, which is approximately 25k lesser than the market was expecting.