Trading the Safe Haven Currency Markets

The markets are looking increasingly nervous and the safe haven currencies are back in vogue. Bad news across the markets, from BP’s continued woes to poor data out of China, is leading to an outbreak of risk aversion. This can clearly be seen in the forex spread trading markets.

The US Dollar is often seen as a safe haven currency. However US stimulus plans and poor unemployment data is worrying investors.

The Swiss Franc used to be seen as a safe haven until the Swiss National Bank (SNB) started pegging the currency to the troubled Euro. Having said that, the SNB has recently implied that it will let the Franc float more freely and that there will be no such pegging to the single currency. This de-coupling has seen the Swiss Franc swiftly appreciate, although there is a risk that the SNB will start intervening again.

The number one safe haven currency though, continues to be the Japanese Yen. With more poor data out of China, the Australian Dollar/Yen rate has dropped. The Australian economy is heavily dependant on its commodity exports to China. This in turn means that the Australian Dollar market is a way to speculate on the Chinese economy. Any weakness in Chinese manufacturing or export data translates into weakness for the Australian Dollar.

The problem for Japan though is that the currency is seen as a safe haven. No doubt they would like a weaker currency. Indeed, earlier in the summer the Yen was looking troubled after the Japanese Prime Minister resigned. He was replaced by the Japanese Finance Minister who talking tough about weakening the Yen in order to reduce the continued threat of deflation.

As Simon Denham of Financial Spread recently commented, “the political uncertainty has played on the Japanese currency, rather like the uncertainty that Sterling suffered in the run up to the UK general election. Nevertheless a weaker Yen is important for Japan’s exporters. There has even been talk that a new government will be reluctant to deal with the country’s public debt problems, which might lead to a credit rating downgrade and further Yen weakness, although this theory seems somewhat extreme”.

If this does happen and the Dollar/Yen rate edges higher then we are likely to see price resistance at ¥93.00. If that level is broken then the bulls who are day trading will be targeting ¥95.50 and then ¥97.50.

With US debt problems though, it is strange that the Dollar was seen as a safe haven and appreciated so much in the first half of 2010. More recently though that sentiment has completely reversed and it is the turn of other currencies to strengthen, in particular the Yen.

Note that the US Dollar weakness hasn’t just boosted the Yen, the recent strength in both the Euro/Dollar and Pound/Dollar rates have also been down to the US currency. The Dollar has felt the brunt of the selling in line with the equity market over continued global economic problems.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.