Japan Intervention Sends Dollar Sharply Higher, Commodities Lower

October 31, 2011 01:26 AM

What Traders are Talking About:

* Japan intervenes in forex market. Japan's finance minister confirmed the country intervened to stop the record rise in the country's currency overnight by buying dollars and selling yen. The unilateral move is believed to have topped the 4.5 trillion yen of intervention on Aug. 4, with some estimates as high as 8 trillion to 9 trillion yen. The intervention caused a sharp surge in the U.S. dollar, which in turn put pressure on commodity markets.

The long and short of it: Focus in commodities, including grain and soy futures, remains on macro-economics.

* More macro-economic focus coming. While investors watch to see if Japan will follow up its overnight intervention with more dealings in the foreign exchange market, there's also a bunch of economic and policy-setting meetings to monitor. The Fed holds its FOMC meeting Tuesday and Wednesday, with Chairman Ben Bernanke scheduled to hold his quarterly press conference at the conclusion of the monetary policy session. Also, the European Central Bank will meet Thursday under the direction of new president Mario Draghi. And Australia and the Bank of England will hold monetary policy meetings this week. Plus, there's a G20 summit in Cannes, France, Thursday and Friday.

The long and short of it: The plethora of economic news will keep much of traders' attention on macro-economic factors and outside markets.

* End-of-month positioning could weigh on grain/soy futures. In addition to pressure from strength in the U.S. dollar index, grain and soy futures could face selling from end-of-the-month positioning today. October was a positive month for corn, and barring a sharp collapse today, a net-gain month for soybeans and Chicago wheat. As a result, traders may be looking to put some additional profits in their pockets today.

The long and short of it: Given the negative tone created by strong gains in the U.S. dollar, traders may be more apt to actively taking profits in grain and soy futures to close out the month.


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