US Dollar - Unwinding of Leveraged Bets Triggers Collapse in Financial Markets (page 2 of 2)

Looking ahead, Eurozone unemployment, German unemployment, Eurozone consumer confidence and consumer prices are all due for release. German retail sales were delayed to March 2nd. Improvements are expected in all of the reports, which should continue to give the European Central Bank reason to lift interest rates. Switzerland reported a stronger UBS consumption indicator. This suggests that we could also see stability in the KoF leading indicators report tomorrow.

British Pound - Interestingly enough, the GBP/USD, which is normally a very volatile currency pair had the tightest trading range today. There was no major data release which means that we will have to look ahead to tomorrow's data, including both the consumer confidence survey and the Nationwide Housing price report for more direction. Expected to rise by 0.5 percent, housing prices are estimated to have bottomed slightly, lending to positive undertones in the UK economy. However, there is plenty of room for lower than expected actuals as mortgage applications data was less than exemplary in the London morning. Separately, consumer confidence is estimated to remain relatively close to last month's results with median estimates anticipating a -8 reading. Lower figures are possible following the dour spending figures seen in the beginning of the month.

Japanese Yen - Movements in the Japanese Yen was the main focus today as the currency skyrocketed against everything in sight. Carry trade liquidation is in full force and usually when this happens, it is not just a one day affair. After having already made great profits being long the Dow and the short the Japanese Yen, leveraged traders may not be as easily willing to get back into the market at this point, especially given the risks that the US economy faces. In fact, the liquidation could exacerbate as more traders bail out of risky assets. Major players are getting stopped out of their long trades and we expect more to come. The Dow dropped 200 points intraday in a matter of minutes while USD/JPY dropped 100 pips in a blink of an eye. The quick and sharp reversal in the Dow and the far milder reversal in the dollar is clear indication that some big money was being stopped out.

Commodity Currencies (CAD, AUD, NZD) - The commodity currencies collapsed today on the back of carry trade liquidation in the high yielding currency pairs. Australian data was stronger than expected with new home sales rising for the second straight month. We heard encouraging words from the typically grim Costello who said that small businesses were more confident. New Zealand on the other hand reported softer inflationary numbers. The RBNZ followed up the report with a downward revision to inflation expectations. We could continue to see more liquidation out of the high yielders as we close in on the Japanese fiscal year end on March 31st.