The extreme move towards risk aversion fueled another rally in Usd trading. The EurUsd fell 137 pips to the high range of 1.24, while the UsdJpy took a larger dive down 174 pips to the mid 92 level. The GbpUsd dropped over 370 pips placing the pair back to levels seen in 2002. The Equity markets extended its recent decline with the Dow leading US indexes in losses falling 2.42% to 8175. European stocks closed on a weaker note with the CAC 40 down 3.96%, FTSE off 1.72%, and the SMI off 3.07% at 5500. Bond yields were mostly flat, the 2yr saw slight increase of 2bps, while the 10yr was unchanged from the previous close. Commodities continued to soften with oil down 3.00% to $62.30bbl, and gold slightly lower at $730oz.

Trichet released a statement today suggesting that the ECB may look to cut interest rates next week, less than month after the central bank reduced rates 50bps in a coordinated move to address the financial crisis. It is unclear how much rates will be cut, he went on to say that it is a “possibility not a certainty.” German Ifo data declined to its lowest level seen in five years, which is evidentiary to the increasing downside risk to growth. The UK continues to struggle with housing woes, as falling home prices adversely affect the consumer. The outlook for the UK economy is bleak following statement by Mervyn King affirming that they are currently in a recession. We hold our expectations for the Sterling to trade through current support levels of 1.52, the fundamentals do not point to a stabilization in the near‐term.

New Home Sales surprised investors with a better than expected reading of 2.7% vs. the survey figure of ‐2.2%. The data lifted the equity markets for brief moment, but was not enough to ease volatility and overall risk aversion. The only currency in the majors which strengthened against the dollar was the yen as carry trades continue to unwind. It is likely that the trend trading will persists in the market until the global economy begins to recover.

ACM Forex