Wednesday, September 15, 2010

Bank of Japan Intervenes To Knock Down Yen

The market opened lower in early trading, but has once again rebounded and is roughly flat as of this post. There hasn't been much news this morning. One economic report was the Empire Manufacturing Index which came in below estimates at 4.1 for September.

The big news was Japan's government intervening in the currency markets to weaken the Yen, which has been hovering at 15-year highs. Being an export driven economy, a strong Yen hurts their economy as it makes Japanese products more expensive on the global market.

Currency interventions don't always work. Today it is having its desired effect, knocking the Yen -3% lower on the day, which is a big one-day move. But it remains to be seen if it will work longer term. On average, it is usually easier to move a currency lower, as the govt. can print more money, etc, but it is harder to prop up and support a falling currency when the rest of the globe is selling.

The action in Asia overnight was mixed, with Japan spiking +2.3% on the lower yen, while China got hit for -1.3%. European markets were generally weaker this morning.

The dollar is higher today on the weak yen. Commodities are down a bit, with gold off slightly to 1269 and oil down $1.40 to $75.40.

Among the sector ETFs, tech (+0.40%) is leading the way, followed by healthcare (+0.36%); energy (-0.68%) is the biggest laggard so far.

Trading comment: I have been saying how the market was back into overbought territory. The graph below shows what I am talking about, as you can see how high the oscillator has moved. So far, the market hasn't given up much ground, but in my experience it's better to hold off on new buys until the market has worked off this overbought condition, one way or another.

As we head into the back half of September, we are also getting into preannouncement season. Earnings estimates have held up pretty well all summer, but there is always the possibility of some big companies preannouncing that they had a weaker than expected quarter, which would weigh on the market.


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