Dow Breaks Bear Stearns Low, EURJPY Hits Record High
June 26, 2008
Two significant milestones have been reached in the financial markets today, one in stocks and one in currencies.
On an intraday and possibly even on a closing basis, the Dow Jones Industrial Average has broken the Bear Stearns low. It was in the middle of March that the Bear Stearns debacle became public, sending the Dow to a low of 11,731. That level was broken within the first minute of trading today.
In the currency market, EURJPY hit a record high of 169.46.
The parabolic move in these two assets are driven partially by the 3 factors; the rise in oil, the technical break of a previous low and news that Goldman Sachs put Citigroup stock on its sell list and downgraded several other brokers. This drove Citigroup stock to a 10 year low.
The market was already bearish dollars following the FOMC rate decision. Today’s breakdown in US stocks and mixed economic data has sent the US dollar even lower. GDP and existing home sales were stronger than expected, but jobless claims and the help wanted index deteriorated, pointing to a weak non-farm payrolls report next Thursday.
Meanwhile is interesting that EURJPY which is often times considered a carry trade currency is not necessarily moving in lockstep with the Dow. It did give back some of its gains but given the move lower in USD/JPY, it is clear that the rise in EUR/JPY is driven by the move in the euro. The relationship between the Dow and carry trades has broken down as the monetary policies of central banks around the world diverge.
Expect this trend to continue in the coming week.
Posted in EURJPY Record High, forex blog, Kathy Lien, Bear Stearns, Dow, US Dollar
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June 26th, 2008 at 12:36 pm
Your last paragraph eludes to a very important and significant (in my opinion anyway) development. As monetary policies of cenbanks around the world diverge curious folk must ask what this could mean for global cap markets and economies.
I am not an expert and probably don’t know sxxx, but what the heck i am willing to take a wild guess:
We live in a time when oil prices have rocket upwards to almost $150. The federal reserve is unwilling /unable to support the nations currency. Inflation in most EMs is at double digit levels and forces aggressive rate hikes (see India and China ….) which eventually will choke of growth. (China’s CSI 300 Index of stocks has fallen 44 percent this year after gaining more than 160 percent in 2007) We are in the beginning phases of a reversal of global balance of payment disparities which have been the financiers of western economies and their account deficit (emphasis U.S.) in the last decade. This reversal has the potential to plunge world growth into recession, which could be deep and devastating given the mountain of bad debt and NPLs that can be expected. The first depression in the 21st century is only a heartbeat away.
June 28th, 2008 at 12:02 am
My indicator shows that EUR/JPY is a sell now. I will be interested to sell EUR/JPY if it goes higher.
Always appreciate your commentary.