Another volatile day has hit the equity markets which have led to sharp moves in currencies.
News that Ambac and MBIA are off credit watch by Standard and Poor’s is the primary catalyst behind the move. The US dollar has strengthened alongside the other Japanese Yen crosses but the biggest mover was the Canadian dollar against the Japanese Yen, which has rallied close to 300 pips. The move in stocks is impressive, especially considering that the Dow jumped over 100 points in less than 10 minutes and ended the day up close to 200 points. Risk appetite has returned to the markets and we have seen strong upside breakouts in many of the Yen crosses. There could actually be universal continuation in the Yen crosses which is something that we have not seen in a very long time. Over the past few weeks, there have been many days where pairs like the AUD/JPY and EUR/JPY would climb higher but USD/JPY or GBP/JPY would sell off. Japanese small business confidence is due for release tomorrow. Confidence among this group has been weak for sometime and we do not expect this to change. Meanwhile the London Times reported that China’s Sovereign Wealth Fund is looking to invest $10 billion into Tokyo listed stocks. If this goes through, it could give a temporary boost to the Japanese Yen.