Daily Forex Commentary
By Jack Crooks

Key News
- Japan's trade surplus hit 915.9bn yen ($7.76bn) in November, up 54% on a year ago. (BBC)

Key Reports
8:30am: Initial jobless claims for the week of December 16. Expected: +15K. Previous: -20K.
8:30am: Third quarter final GDP. Expected: +2.2%. Previous: +2.2%.
8:30am: Third quarter corporate profits, final. Previous: +4.6%.
10:00am: November Chicago Fed National Activity Index. Previous: -0.31.
10:00am: November Conference Board leading indicators. Previous: +0.2%.
10:00am: DJ-BTMU business barometer for the  week of December 9. Previous: +0.2%.
12:00pm: December Philadelphia Fed Business Index. Previous: 5.1.
4:30pm: Money Supply. Previous: 5.1.

Quotable
"A man always has two reasons for doing anything: a good reason and the real reason." - JP Morgan

FX Trading - Another embrace of the carry-trade
It may not feel like our good buddy was gone for very long (if at all), but the yen carry trade looks like it's opening its arms for a holiday embrace.

The Bank of Japan left its benchmark interest rates pat at 0.25%. Then the Japanese central bank's main man spoke of "weak" consumer prices and spending. This should come as no shocker since the Japanese are notorious for their saving habits. But the fact is, Japan's tightening cycle is going nowhere fast. Less than adequate data has got the BOJ looking awfully "turtle dovish."

Considering the yield differential, and the potential for it to widen further in early '07 now that the ECB is in hiking gear, it's probably no surprise to see the yen drop to an all-time low against the euro and a nine-year low against the Aussie. After all, Australia's key interest rate is a whopping six percentage points higher than the zero-point-two-five that Japan is sporting.

It raises the question: Why are we working for a living instead of borrowing truckloads of yen, reinvesting in those safe, stable, high-yielding "other investments" and clipping coupons while sipping pina coladas on the beach? I guess we are jaundiced with our risk-reward outlook, which basically says: When it looks that easy, it's never that easy!



Thinking of the things this coming season that could change the carry-trade dynamics, we get three:
1) Surprise growth in Japan and BOJ aggressiveness
2) Rising volatility in currencies across the board
3) Global market risk based on a major meltdown (hedge fund, contagion, etc).

Stay tuned! Because as Yogi warns us, "It ain't over till it's over."