Forex Trading - Market Update

USD/JPY
Speculation that the BOJ will stimulate until it causes the desired level of inflation began propelling USD/JPY higher near the end of the Asian session. I'm not playing USD/JPY to the long side for two reasons. First, I suspect the real rate of return on JGBs will decrease in future; but the fact of the matter is that it hasn't happened yet. I'll have to see USD/JPY continually moving higher during periods of risk aversion over the next couple of weeks before I become convinced. I favor playing Yen strength until then.


Commodity Currencies
The Kiwi and the Aussie started coming down as risk aversion came into the market during the European session. Obama held a press conference around 1:30 P.M. and caused the markets to sell off on his insistence that an increase in taxes on the wealthy must be a part of any compromise with the Republicans. The Canadian dollar exhibited unusual strength today give the circumstances. It may be due to cross flows from higher yielding currencies or higher oil prices.

I have a short AUD/USD position with a cost average of 1.0400 and plan on holding it until the fiscal cliff is resolved (or significant speculation thereof.)


EUR/USD
Of the majors, the Euro was the strongest currency on the board today. It ripped up against commodity currencies and even went up 30+ pips against the USD on the day. I believe it was due for a slight reprieve, as it was temporarily oversold. Some comments from European political and financial leaders managed to temporarily shift market sentiment; but we believe that as long as the markets continue to sell off over concerns of the fiscal cliff, EUR/USD will decline as well.

I'm short EUR/USD at 1.2725 with a target of 1.2615 and will add more if we get above 1.2800.


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