The dollar seems to be breaking away from the risk aversion trade which has been the persistent theme in the marketplace. The EurUsd rose nearly 130 pips to the low range of 1.26, while the UsdJpy moved 50 pips to the downside trading at the mid 96 price area. The GbpUsd rallied over 300pips to the low 1.50 level, recovering some of last week’s losses. Equity markets opened lower in the US with the Dow down 1.2% or 100pts, the European stock indexes are negative as well with the DAX off 2.1% or 100pts in intraday trading. Bond yields are mostly flat with the short end of the curve marginally higher, there was a bit more selling in Eurobonds vs. US treasuries. Commodities were mostly flat with oil slightly higher at $57bbl, and gold fractionally lower at $735oz.

The Euro picked up momentum which has been atypical to recent price behavior relative to risk aversion. Trading in the FX markets has been highly correlated to trends in equities and commodities, which has displaced some of the fundamental economic drivers. If the risk aversion trade breaks, we are likely to see economic factors take precedent in currency trading. In the UK, home prices declined 2.9% vs. the prior reading of 1.0%. The mortgage markets have experienced substantial turbulence based on the lockup in available credit. In an attempt, to create liquidity the govt. is looking trying recapitalize through various lending facilities. The BoE is taking precaution against excessive borrowing, to prevent a selloff in the Sterling.

Empire manufacturing data came in at ‐25.34 vs. ‐26.00 exp, the reading is still exceptionally weak serving as evidence of a US recession. The dollar and the yen hold their posts as the designated safe haven currencies during the financial crisis. Even with negative GDP growth out of Japan, market perceives risks to be limited in the region in comparison to other major economies.

ACM Forex
Advanced Currency Markets