Another same week

I hope you did buy the major currencies on the dips this week. Currencies like Eur, Gbp, Aud and Nzd have continued to be on a tear against the greenback.

GBPUSD had been the stellar performer, hitting 1.61 t0 come close to 50% retracement between last year's high and this year's low.

One reason why these currencies moved big time were also due to long term yields moving higher this week. The market feared that investors will not soak up the increased supply of debt issued by the US govt to fund its stimulus packages and sold off treasuries.

Higher LT yields also endanger the recovery of the Us economy because borrowing costs, which usually come at a premium to risk free yields, will be pushed up. The housing market will stagnate and so will corporate borrowings.

If US govt debt auctions do not turn out as well as expected, then we can expect more selling of the dollar as well, as investors start to think about re-allocation into other currencies as the US economy falls further into danger of non-recovery.

That though, needs to be balanced against the allure of higher yields (returns) on dollar based assets. Japanese investors this week have shown an appetite to take risks again, buying up dollar based assets, hence pushing up the USDJPY to 97 from 94 in the middle of this week.

But going forward, the market will still pay attention to US govt debt auctions for directions. Even stocks too, is behaving accordingly. Better debt sales will help stocks as yields are brought down.

This coming week, I prefer to not be so greedy to continue to buy into the majors (higher yielding currencies) at every chance. Alot of central bank meetings are taking place, not to mention major econ data like the NFP on Friday.

The ECB will announce more details into their covered bond buying scheme. We'll see if they are open to more buying going forward, if so, that might hurt the Eur.