The Usd strengthened across the majors based on the recent trends in risk appetite among investors. The EurUsd fell over 160 pips to the high range of 1.31, while the UsdJpy declined to the 100 level. The GbpUsd continued yesterday’s pattern, trading through previous support to the 1.69 price area. Equity markets are lower in the US and Europe, which was accompanied by a much moderation in volatility. The Dow slid as much 234pts in intraday trading, but has since improved from the lows of the day. Bond yields declined across the treasury curve, as well as overseas in Europe with the 10yr in as much as 7bps. Commodity prices have scaled back with oil down over 5% to $70, and gold lower by 3% to the 773 level.

The French govt. took decisive action to inject $10.5bln into their top six banks in an effort to boost their capital position. This is one component of a larger strategy to recapitalize financial institutions, which will be primarily done through various types of sector lending. It is very likely we will see a return to economic fundamentals as policy makers express inflationary concerns and a need to revert back to analysis of account data. With upcoming GDP and CPI projections in December, we are likely to see easing in monetary policy. In the UK, CBI Industrial Trends orders dropped substantially to ‐39 vs. the prior reading of ‐26, as well as the estimate of ‐30. In addition, the BoE noted that easing in rates is likely to continue until they see some sort of recovery in the housing sector, as it is an integral component of the financial crisis. The EurUsd is likely to follow trend trading based on overall risk aversion in the marketplace. We hold our target for the EurUsd to 1.25 before year‐end based on current market conditions and expectations for slowing growth.

ACM USA
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