Remember the LORD for it is he who gives you the ability to produce wealth and so confirms his covenant... Deut. 8:18

Sunday, December 21, 2008

When To Buy: Part 2


3 months chart Dollar Index DX shows a slight dip to 81 while a 4 days chart shows USD strengthen against JPY at 90. If DX continues to fall but with USD rallying against the JPY, we should see a further rise in gold prices, commodities currencies and equities.
Gold is seen trading between US750 to 850 range in last 4 months.
Here's an article related to Carry Trade.

Yen Falls as Carmaker Loans Revive Confidence in Carry Trades By Ron Harui and Stanley White
Dec. 22 (Bloomberg) -- The yen fell against the euro, extending this month’s decline, as U.S. government aid to General Motors Corp. and Chrysler LLC gave investors confidence to boost holdings of higher-yielding assets funded in Japan.
The Japanese currency also dropped versus the dollar on speculation Bank of Japan Governor Masaaki Shirakawa will express concern over the yen’s gains following a record plunge in exports in November. The dollar weakened against the euro before data this week that may show U.S. consumer spending, home sales and durable goods orders fell.
“GM and Chrysler have won a reprieve for the remainder of this year,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This is pushing the yen a little bit lower.”
The yen dropped 1.3 percent to 125.78 per euro at 1:53 p.m. in Tokyo from 124.22 on Dec. 19, paring its gain this year to 30 percent. The currency declined to 89.99 against the dollar from 89.31 late last week. It reached 90.23, the lowest level since Dec. 16. The dollar weakened to $1.3972 per euro from $1.3912. It slid to an 11-week low of $1.4719 on Dec. 18.

Investors added to so-called carry trades, in which they get funds in a country with low borrowing costs and buy assets in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits. Japan’s benchmark interest rate is 0.1 percent, compared with 2.5 percent in the 15-nation euro region, 4.25 percent in Australia and 5 percent in New Zealand.
The yen has appreciated 24 percent against the dollar this year, the most since 1987, as more than $1 trillion of credit- market losses sparked a seizure in money markets and threw the world’s largest economy into a recession.

“The bias is for the dollar to go lower,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “U.S. economic data are likely to confirm just how bad the outlook is.”
The U.S. currency has gained 4.4 percent against the euro this year, 33 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit.

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