Fifth Time’s A Charm?

  • September 26, 2001
  • Marc Dupee

I don’t think so!
 The Bank of Japan intervened for
the fifth time in just over a week in an effort to weaken a rising yen. But
the BOJ’s dollar buying/yen selling had only a negligible effect as the
December
Japanese yen
(
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exactly the hammering impact you’d expect (and usually get) when one of the
world’s most formidable financial institutions decides to move this
market.

The yen has been in rally mode since the end of
August, gaining as corporations repatriated yen to meet new Japanese
accounting standards to realize losses in depreciated assets. Many of
Japan’s companies have had to pony up yen to “mark-to-market” by
the end of the fiscal year in September, fledgling stocks that have been
suffering as the Nikkei slumped to 17-year lows. And the yen has been
rallying despite reports indicating the Japanese economy is in dismal
shape.

One of the strongest things a market can do is rally
when it’s not “supposed” to. The positive response to the economy
and the weak response to the intervention serve to demonstrate that the yen
is rallying when it is not supposed to.

This leaves the yen in a 1-2-3-4 Pullback From Highs
setup for tomorrow. A move above today’s high is generally the trigger in
such a setup. There also exists a fundamental reason now for yen purchases.
Although Japan has been impacted by the terrorist attacks on the US and has
exposed itself to potential attacks by siding with the US, it still could be
seen as a safe-haven or a place to diversify in a time of increasing
uncertainty.

Long bonds rallied
vs. shorted dated Treasury
futures: T-bonds
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while five-year notes
(
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Several factors are driving this flattening of the yield curve: 

  1. The government’s sale of $17 billion in two-year notes. 

  2. A report circulating that the government will continue its year-long campaign
    of paying off debt by buying back longer-dated issues. Taken together, the
    action implies the government intends to pay for the recent tragedy
    and airline crisis by issuing shorter-dated Treasuries. 

  3. The $9 dollar
    a barrel decrease in the price of crude oil is taking a lot of the inflation
    bid out of the long end of the yield curve. 

  4. The US will retaliate
    soon.

T-bonds
(
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setup for a second day, adding 17/32 to 108 15/32.

From the Momentum-5
List, both
December gold
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silver
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morning laps before continuing higher. Both contracts closed on their
session highs and gold closed at a 52-week high (basis December). Silver
also made good on a daily Pullback From Highs
setup.


November crude oil
(
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from the

Implosion-5 List, made good early in
the session on an
Off The Blocks
 short, slumping more than 1.50 a barrel. But as mentioned in yesterday’s
Futures Market Recap, crude oil was way oversold, having lost over eight
bucks in eight days prior to today’s session and after hitting a two-year
low. So traders were looking for a reflex rally. Crude came back .57 to
close at 22.38. The biggest percentage mover in the energies, heating oil
(
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recovered smartly from its equivalently oversold condition and rallied .0314
to .6581, or 5%.