By: Hillel Fuld
Following a long 17 month period of economic contraction, Japan's economy actually grew for the first time as GDP data came out at 0.9%, which is a little worse than most analysts predicted, but objectively, not a bad number. However, dig a little deeper and you will find that those numbers are not all good. Yes, Japan has increased its inventory adjustments and enjoyed a rise in exports and government spending, but private consumption is still too low, which some say signals that more trouble might be ahead.
The JPY is continuing to benefit from the risk aversion theme of the past 3 days but overall the Forex market seems to be dominated by bullishness. This means that although the Yen might flourish over the next 2-3 days, the long term expectation is a downward trend as the recession continues to lay its seeds.
Similar to the YEN, the Dollar, although stronger than most currencies, is facing falling stock prices and risk aversion. The dollar is not dead yet but it currently trades negatively against the Yen due to more problems in various small American banks.
The GBP does not look like it is going to be changing its negative trend any time soon with PM Gordon Brown continuing to stimulate the British economy with borrowing, spending, and money printing. The U.K's economy shrank 5.6 percent in the second quarter from last year's numbers, suffering more in the deepest global downturn in decades, than the U.S or the 16-country euro zone, which declined 3.9 percent and 4.6 percent, respectively.
The above information indicates to us that the U.K can’t afford a stronger currency and we therefore recommend to think twice of three times before going long with the GBP.