Opinions are strong but commitment lacks

Bearish barks and wagging tails

The biggest story of last week was the sudden strengthening of the yen both against the dollar and generally against all currencies. It is something I had expected eventually but was not quite ready for it last week.

Why did it happen? Once again no one really knows but there are always plenty of opinions which, when the yen strengthens inexplicably is normally attributed to “risk aversion.”

There is a growing belief in the market, I hear, that the S&P’s bear rally (that is a rally within an overall bearish expectation) has ended and therefore the talk is for the index to begin plummeting again with the market beginning to raise the favored doomsday scenario of a mega-super crash. Hence the yen suddenly becomes a safe-haven currency.

I don’t profess to be an expert in equity markets but I have to admit it surprises me given the general, if limited, improvement in global sentiment. We’ll have to see I guess.

However, this basic pattern of market chins wagging, extorting various projections and opinions, is one that has been around all year but we have clearly seen that in the bigger picture there is a general lack of commitment to opening significant risk in any direction. To be honest, I can’t see this changing in the short term.

To be honest I tend to side with the doom and gloom comments in the larger picture over several years but I can’t see any particular evidence to suggest this is going to develop in the short term…

In the forex market there is a clear multi-month range in the dollar against the European currencies and a generally erratic but declining trend against the yen. These seem set to continue for another 2 months at least according to my cycles. September is where I see some greater directional moves developing – and that is a stronger dollar.

Until then expect more of the same up-a-bit, down-a-bit moves within the general trend.

For the coming week this should see the yen strengthen in general and against the dollar to around the 90.00-90.50 area where we should see another corrective leg higher. This seems set to impact in the same way against the European currencies which themselves remain in a declining mode against a firm dollar and this looks set to continue to the end of the month. However, the route will not be totally direct with the dollar likely to stall in its rally by around Wednesday to correct lower into the end of the week.

Ian Copsey



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