Early trading was eventful, with several markets experiencing a jump in volatility. Among currencies, the Japanese Yen became suddenly stronger even though the spike did not last very long. Gold was another market with uptick in activity. However, the biggest mover was silver, which fell to the critical support 20.00, before recovering for the rest of the day. Silver can be a good leading indicator for currencies – it is often the first market to show activity and commodity currencies follow its direction.

Today, with silver rebounding immediately after its spike down, the commodity currencies also started to gain. The Australian Dollar climbed to 0.9830 while the Kiwi rallied to 0.8190. Calling this advance a “rally” is probably premature, as more meaningful advance is needed to turn the bearish tide. If anything, we have just witnessed a corrective rebound within the main downtrend. Still, these moves were reasonably large and directional, steady enough to make few pips on.

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There are several important market developments grabbing headlines: the bull market in US stock, decline of precious metals and sharp fall in the Yen. All of them are big, but from the perspective of this blog, what happens in currencies is of primary consideration. That is why the Japanese Yen receives more attention than other stories, especially since it continues to get weaker, having easily broken the 100 threshold. After clearing this psychological resistance, the USD-JPY swiftly reached 103, with, seemingly, no end in sight.

In the past few days, many analysts started to issue warnings about this rally, but for other reasons. Yields on Japanese government bonds experienced a sharp uptick in the past couple of weeks, reaching as high as 0.865%. That is almost double the yield of 0.444% in early April. Some market observers are beginning to think that soon the yields may reach levels high enough to become attractive to income seekers. At some point, we could have a situation when the Japanese Yen is a target of the carry trade and not the funding currency. It would mark a dramatic change to what we have been used in the past decade or so, although this line of thinking is probably premature.

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Thursday was not very conclusive in Forex trading. The US Dollar, very strong performer recently, lost some ground versus several other currencies. European currencies in particular, and to a smaller extent the Japanese Yen, recovered some of their losses in relation to the USD. However, taking a step back, today’s action is only a consolidation within primary trends, and not a reversal. At least not yet.

Commodity currencies, on the other hand, moved to a different tune. All of them slipped again, especially the Australian Dollar and the New Zealand Dollar. They lost about 1% each, maintaining their downward trajectory. There was no specific news specifically affecting these instruments, which means that longer-term sentiment has definitely turned bearish. Even the potential short-term rebound discussed here yesterday did not happen.

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