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(March 7, 2002) CURRENCIES: The yen chart is suggesting a short term low has formed and a rally to the 7850 area basis March is underway. Yen bulls cite the 10% jump in the Nikkei over the past week, a growing perception that investors are under-weighted in Japanese assets, a recent move by Merrill Lynch and Credit Suisse to increase their exposure to Japanese stocks and also the repatriation of yen before the end of the Japanese fiscal year. I suspect all these thoughts have merit and that a rally is due. However a change of trend is another matter. The Japanese banks still have plenty of bad loans, the Japanese culture has not changed to make itself more competitive on the world market, Japan has yet to show (other than the stock market rally) any signs of extricating themselves form their recession, while the threat of downgrades from Moody's still exists. Japan's fourth quarter GDP figures are due out Friday. Be advised.

Could we see the U.S. Dollar about to give up a great deal of its premium to the Euro? The chart has taken on a very negative tone, and I suspect that the move to institute a 30% tariff on most steel products will be seen as negative by FOREX traders. Adding to bad times for the dollar are widespread expectations for a poor jobs number on Friday. If it comes out showing that joblessness is still a problem, we may see aggressive selling of the greenback.

While recent U.S. stock market action has been positive, many foreign holders of greenbacks were in U.S. bonds for safety. Now those bonds have begun to take a hit as the U.S. appears to be working its way out of a recession. Selling by investors, both foreign and domestic, no longer convinced of the need to be in U.S. bonds, has added to the dollar weakness.

M. Steven Morgan
www.commodityreview.com

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