The dollar resurged in intraday trading posting strong gains against the majors as the risk aversion trend continues influence market movements. The EurUsd sunk 200 pips to the low range of 1.27, while the UsdJpy declined roughly 60 pips finding support at 98. The GbpUsd collapsed 360 pips to the high 1.60 price area on higher volatility. The equity markets rallied in the US and Europe with the Dow strengthening by 1.5%, while the FTSE picked up 2.00%. Commodities were mixed oil rising 3% to $67bbl and gold sliding 2% to $724oz. Bond yields were slightly tighter at the shorter end of the curve, while the latter end of widened 4bps.

Growth projections for the Eurozone declined amongst the major banks due to the deterioration in the current economic environment. We expect the ECB to lower rates 50bps to 3.25%, which is in line with the recent cut by the Fed. One component of relief was the Eurozone CPI reading which met expectations at 3.2%. A relief in inflationary pressure is conducive to generating consumer growth, which should become a global trend due to lower commodity prices. Fundamental and technical analysis is displaced from FX trading as the financial markets are being influenced by fluctuations in risk appetite. In the UK, consumer confidence fell to ‐36 vs. the previous reading of ‐32. This does not come as a surprise as the UK economy has struggled along with the rest of its peers in the G10. Wed hold a bearish position on the sterling looking for levels closer to 1.50 by year‐end.

Fed Chairman Bernanke called for a govt. back stop on mortgage backed securities which gave investors in capital markets a bit of relief. On the economic front, personal income rose slightly better than expected to 0.2%, however personal spending declined ‐0.3% which is a severely low level. It is likely that monetary policy will ease below 1.00% as the central bank focuses on downside risks.

ACM Forex
Advanced Currency Markets