"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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The following chart is a very long term weekly chart of the Japanese Yen/US Dollar cross chart.
Please note that I am using the cross as it is traded at the CME's IMM exchange and not as it is typically quoted on the Forex boards where it is quoted inversely as USD/JY. I personally prefer looking at the cross in this manner because for me it is more intuitive in the sense that if I want to know whether or not the Yen is strenghtening I can look at this chart and see if it is headed higher.
When you see the level at which the Yen has been driven, you begin to understand why the BOJ is so concerned about its level and why the G7 agreed to undertake a coordinated intervention to knock it lower.
Note also the level at which the Yen was trading in mid 2008 when the carry trade began to unwind in earnest. Since that time the Yen has appreciated against the Dollar by nearly 40%!
The Dollar finished a week during which huge risk trades were initially abandoned and then reinstated only to be unable to benefit in the least by any safe haven movements. Note carefully that the greenback could not even exceed the previous week's peak detailing the weakness inherent in the Dollar at this time. I find this lack of strength stunning considering all the events which transpired to contribute to so much volatility in the markets. "Safe Haven" and "US Dollar" are two phrases that seem to be more akin to Oil and Vinegar than Salt and Pepper.
Note that the Dollar experienced this chart weakness due in good part to the massive rally in the Yen this week; however, even after the coordinated G7 intervention against the Yen pushing it well off its best levels against the greenback, the Dollar could not finish the week above a significant chart support level near 76 on the the USDX.
The stage is now set for the Dollar to see further weakness which could take it down towards 75, a level last seen prior to the commencement of QE2. Failure there and it goes down towards 74.
Given the weakness in the Dollar, it is reasonable to expect that it will also be one of the currencies of choice when it comes to funding any revival of the carry trade.
Risk trades are back in vogue today but there appears to be a bit of hesitancy to really push them hard across the full spectrum due to continued uncertainty in regards to the nuclear reactor situation in Japan. Until that situation gets resolved, there will be some hedging of risk trades against any further degradation of the sites.
