The dollar was mixed in intraday trading as volatility and risk aversion continue to be a strong trend in the marketplace. The EurUsd spiked over 250pips to the high 1.27 price area, in addition the UsdJpy also experienced substantial gains up 280pips seeing resistance near 98. The GbpUsd declined over 100pips extending this week’s loss, the pair is currently trading with a 1.48 handle. Equity markets rallied with the Dow up over 6% or 552pts and the S&P500 up nearly 7% or 59pts. Bond yields were mostly flat in the US and Europe with the 2yr treasury yield hider by 2bps, while the remainder of the curve was mostly unchanged. Commodities gained strength as oil tested $60bbl up nearly 6% in today’s session, while gold was marginally higher at $736oz.

German GDP fell 0.5%, which was deeper than the forecasted 0.2% drop by economists. The slowdown in Germany will have a significant effect on the long‐term outlook of growth in the region. Germany is an integral part of the Eurozone economy, and if prices come back in line with fundamentals we can expect further weakness in the Euro. Economic data was light out of the UK, and the Sterling saw no relief from sellers in the FX market. From a technical perspective the cable has retraced back to levels seen in mid 2001. We don’t foresee any anecdotal evidence to support a break in the negative momentum.

The jump in jobless claims had little effect on US financial markets, but is a definitive point within down cycle. Initial jobless claims rose to 516k vs. 480k expected, this can be interpreted as confirmation the US is in a recession. With the lower GDP and jobless claims above 500k, the case can be built for a technical recession. Ironically, the dollar has appreciated tremendously in should continue this trend as investors look for secure Usd denominated assets. Once the trend of risk aversion breaks, we should see corrective movements in the FX markets.

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