Risk taking has outperformed risk aversion for the past 6 days. EUR/JPY has traded higher each day and stocks have followed along. One would have to wonder if that performance would not be even better if it were not for the Monday afternoon late-to-the-party downgrade from Moody’s on Greece.
This downgrade just happened to come after a few well-regarded advisors over this past weekend said that the 1t Euro lifeline to Greece was not enough and that Greece will eventually be forced to default. Now we know. The roadmap for trading and investing successfully is not always very well laid out. Luckily we have China to thank for their resolve, right?
Or so I think. In case you missed it on Tuesday morning, in China the Foreign Ministry spokesman Qin Gang told the US to stop politicizing the Yuan exchange rate and let China decide on the issue of its flexibility! That is fairly strong stuff from China. They are probably becoming a bit impatient with the US on the lack of an economic recovery. The Wall Street Journal even mentioned on Tuesday that Fed members were quietly weighing options on what to do if the economy gets worse. It looks as if we have gone from removing extraordinary accommodation to maybe even more extraordinary measures.
Still neither the Fed nor Moody’s nor China is the cause for the recent shift in risk-taking of late. The real reason may be individual currency traders. Yes, currency traders. If you live in Japan you have had to endure through a zero interest rate policy (ZIRP) for quite a long time now. Japan knows this all too well; China knows; Treasury Secretary Geithner knows this and surely doesn’t want it to happen here. Yet the ZIRP has endured in Japan, forcing investors to seek yield in other countries, meaning selling the Yen and investing elsewhere.
Reports out of Japan show that Japanese investors sold off 10% of their euro holdings in May. It is always hard to get exact volume figures in foreign exchange because it is primarily an interbank market and not traded via exchanges but locally they believe that retail investors account for 25% to maybe 50% of all Forex trade in Tokyo. The 10% repatriation was in May but since those figures have been tallied EUR/JPY has risen by 4.5% off its multi-month lows of 108 and risk taking has benefitted globally.
If Japan had 20% interest rates would they be investing so much internationally? Nope. But they do not and it looks as if they have some smart currency traders. Currensee is the place to meet currency traders from around the globe. Listen to what others have to say, share ideas and follow the flows. There is no better time to get started than the present.
This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.