All eyes would be on FOMC on Wednesday

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The slide in the US markets has essentially been due to lot of sell-off of high-yield assets funded by loans in Japan. In fact, that's been the reason that the Yen has been appreciating sharply vis-à-vis the dollar.

 

The current situation has been more like 'the chicken-or-the egg' argument - since the yen is appreciation , people are selling stocks. Because of the US markets falling down considerably, there was more unwinding because of which the Yen has appreciated significantly over the dollar in the last one trade.

 

On Thursday, looking at the Yen and the USD, after rising to a six-month high of 117.60 - because of the concerns relating to the sub-prime mortgage markets, the yen actually depreciated a bit and went up to as low as 118.5.

 

And now, we see, after Friday's sell-off in the US markets, the Yen has risen considerably.

 

Bear Stearns had claimed that this was the worst credit-market it has seen in the last two decades. Add to this, the US job data that was released at the same time-all these compounded led to the green-bag falling against most currencies including the yen.

 

If the US markets continue the free-fall in trade today as well, we may actually see the green-bag come under even intense pressure than what it was on Friday. 

 

Tohru Sasaki, Chief Forex Strategist, JP Morgan Chase Bank , said, "In the past few weeks, the risk aversion sentiment was heightened because of the sub-prime mortgage loan problem and the short-term impact has been the buying back of yen short positions. That's why the yen has been appreciating against major currencies. Although it is still to early to say but it seems that the equity market seems to be stabilized."

 

How does the data picture look at the moment?

 

All eyes will be on the Federal Open Market Committee (FOMC) tomorrow because there's not too much of economic data coming out today. So when the FMOC meets on Tuesday (early Wednesday for Indian markets).

 

All major traders, investors, speculators across currency markets, equity markets and other asset classes would be actually training their eyes on FOMC to see few key data being uttered by the FOMC, namely, the kind of outlook they have in the sub-rime mortgage and the outlook on the growth figure, especially in the sub-prime mortgage markets.