The dollar picked up strength against most of the majors as the risk aversion trade persists in the marketplace. The EurUsd slipped a little over 30 pips to the mid range of $1.29, while the UsdJpy fell 100 pips to the 98 level. The GbpUsd was slightly off, down 30 pips to the low 1.59 price area, which is consistent with the fluctuation in risk appetite. Equity markets experienced considerable losses with the Dow down %5 or 486pts following the US Presidential Election. In Europe, stock indexes also retracted previous gains with the FTSE lower by 2.3% and the DAX off 2.1%. Bond yields tightened extensively in the 2yr treasury with the current rate at 1.372%, which is 24bps in from the previous close. Commodities sold off in a major selloff in risky assets, oil dropped %7 to $65bbl and gold was marginally lower at $738oz.

Eurodollar trading was mostly flat in anticipation of the ECB rate decision scheduled to be released Friday November 7th. Traders are expecting the ECB to cut rates 50bps to 3.75%, it should also provide dovish commentary hinting further easing into 2009. ECB board member Stark stated that “Growth will be very weak well into 2009 and the inflation outlook has changed dramatically meaning much less price pressure.” The BoE is scheduled to announce their interest rate decision tomorrow, in which it is likely to reduce rates by 50bps. The UK has been aggressive in addressing the weakening economic environment, but is struggling with the lockup in credit markets. Additional housing data will be released tomorrow and will probably point to a serious decline in home prices, the estimate is ‐1.5%. A recovery in the housing market and regenerating lending among banks will be an integral part of the stabilization in the global economy.

The reaction in the financial markets to the US Presidential election should unfold for the next several months. President Elect Obama will be aggressive in reforming the regulatory side of the financial markets, in addition he will look to take action in form of both fiscal and monetary policy in an attempt to pull the US out of the recession a bit quicker than its peers.

ACM Forex
Advanced Currency Markets