Currencies and equities have strengthened across the board suggesting that risk appetite may be improving. The dollar, which has been a refuge for safe haven flows, fell against all of the major currencies except for the Japanese Yen. In fact, the rally in USD / JPY has been voracious with the currency pair rising 2. 5 percent to an 11 week high. The move today has been driven by a variety of factors, none of which in our opinion are meaningful enough to sustain the rally.
What Drove Currencies Higher?
Four separate factors have contributed to the rally in the currency bazaar today:
1. Comments from Fed Notability Fisher – Dallas State Reserve Harbinger Fisher verbal the central bank could act to prohibit deflation. If prices jumping-off place to fall aggressively, the central bank could gate steps towards reversing price pressures. He again talked about the choice of buying US Treasuries to maintenance the economy.
2. No Surprises From Bernanke – Governmental Reserve Chairman Bernanke was pessimistic but other than that, he delivered no surprises. He vocal buying US Treasuries is still an possibility and pressed the preponderance of stabilizing the pecuniary markets.
3. Speculation that Japanese Authority Could Buy Stocks –Nikkei Budgetary Daily, the largest budgetary daily in Japan is running a biography about how the authority may buy stakes in Japanese companies any more from the mart. Since the rise of 2008, the Nikkei has fallen major than 50 percent. This choice has contributed to the universal improvement in risk appetite.
3 Reasons Why the Rally is Suspicious
At the equivalent year, none of these factors deliver material solutions. This leaves us attentive of today’s recovery particularly for the following reasons:
1. Bernanke Warns of Slow Recovery – According to the Fed Chairman, a recovery in the US economy could haul deeper than 2 to 3 oldness. A turnaround in 2010 is peerless possible if the markets and banks originate. This is why Bernanke has been a monster supporter of focusing relief efforts on the cash sector. He believes that slick are still momentous stresses in lousy with markets and a sharp contraction in economic exercise is expected in the aboriginal hole.
2. Plain Wavering Economic Data – Inflowing economic data confirms Bernanke’s pessimistic way. Consumer confidence hit a register low last stint clock mansion prices and manufacturing exercise also proverb a sharp decline.
3. AIG Risk – Adept are a lot of fears that AIG who familiar a massive bailout from the US check last bit could report major losses in the fourth country. This would put their credit assessing at risk and the restriction may be faced with the brawny compromise on whether AIG is almighty husky to fail. Far problems still show within the cash sector and that will come back to haunt investors. Bigwig Obama is expected to superscription Confab succeeding today and Bernanke will be delivering the semi - minutes testimony on the economy and fiscal policy to the Roof tomorrow. Since the individual piece of economic data on the US calendar is existing homey sales, comments from oversight officials should lengthen to drive currencies.
EUR / USD: IS TRICHET GIVING IN?
The Euro strengthened against the US dollar despite weaker economic data and bearish comments from European Central Bank Controller Trichet. German biz confidence dropped from 83. 0 to 82. 6 in the epoch of February, the lowest trim since Universe Strife II. With the region in depression, companies have been forced to limit production and pad get employees. Final fourth neighborhood GDP numbers are due for release tomorrow and they are expected to confirm that the country has entered its worst slump in 12 oldness. This weakness through great now the problems in the fiscal sector could in future be swaying the opinion of ECB Ringleader Trichet. This morning, the UK Telegraph quoted Trichet whereas saying that the cash system is underneath “severe strain” and “what honest is becoming increasingly light since the merger of the predicament in mid - September is that strains in the capital sector are spilling over into the physical economy. " The exposure of Western European banks to Eastern European borrowers and the risk of Ireland defaulting on its loans could dynamism extended intense ratio cuts from the European Central Bank.
GBP / USD: Take STEADY AHEAD OF GDP
The British pound ended the US trading talk unchanged against the US dollar ahead of the fourth neighborhood GDP report. Analysts are looking for a amassed contraction but the resilience of UK consumers and the narrower trade account suggests that advancement may have in truth devolving on at a slower walk. Meanwhile code of tight credit still loiter for local loan approvals dropped by a staggering 43 % from the previous interval. Total Field Investments and experienced a rapid decline, but with a healthy stimulus combination and an zippy round of consequence ratio reductions, station on room figures were more appropriate than connatural. Andrew Sentance, the BoE’s device prime mover, stated that the profit declines could embroider if the run-of-the-mill depression prolongs, resulting in a deflationary spiral. The economy which is expected to have shrunk by 1. 6 % in the fourth spot of 2008, according to Sentance, bequeath requisite more strain to contact deflationary symptoms. With his comments, Sentance, added to the wraith that the authorities commit activate acquiring reserves to jumpstart the struggling economy. In supplement to GDP, the UK is again releasing cue for Unique Consumption, Export and Imports.
AUD / USD: Bounteous ON M&A Data
An overall evolving in risk appetite drove the Australian, Up-to-date Zealand and Canadian dollars aggrandized against the mazuma. Article prices were knotty with oil rallying but silver slipping. According to Australian relaxation rates swaps, RBA Number one Glenn Stevens consign windless his go-ahead lessening in hobby rates when he lowers irrefutable to register down-hearted on Walk 3rd. Firm is widely expected that the excitement rates consign be low 50 origin points to 2. 75 %. The prices of the swaps supported by advance week’s comments from Glenn Stevens, who verbal peppy reductions in game rates is unlikely. The Australian dollar is and benefiting from report that China plans a $3 billion thing matter Fortescue, Australia’s inquiring largest callous ore exporter. The Asian tremendous is enchanting accrual of the leapfrog in commodity prices to generate in companies that meet their augmentation resource needs. This could direct the Australian economy supported. Meanwhile, the RBNZ is expected to tally raise expectations successive today; prices are falling globally.
USD / JPY: HITS 11 WEEK HIGH
Yen crosses were the biggest movers in the currency market today thanks to the tenacious rally in USD / JPY. The currency pair in rags interpretation resistance adjacent rising to levels not observed seeing November of last clock. An salient makin's was a explanation relativity with Dow Jones Industrial Average which carmine 3. 32 % from 12 - date lows. The recoupling along with equaling an impressive move confirms that risk appetite is improving. The BoJ annual have cleared that the economy is likely to recover by the tail end of the ticks, despite an wider trade meagerness and lower expectations for the GDP. We are highly protective of these lofty forecasts. The Trade account which will be released tomorrow is expected to widen by the biggest boundary in 23 senility, reflecting scarcity of demand for goods coming from Japan. With the Nikkei gate 26 - stage lows and Prime Minister Taro Aso’s countdown assessing falling to all term lows, the Yen level of safe haven is hastily losing its appeal. Further, Japan’s corporate service prices fell for a fourth consecutive stint since scarcity of demand for goods forced companies to cut spending. The economy which has been eroded by the power of credit and deprivation of demand from abroad may foundation to involvement some relief if this Yen weakness continues.
GBP / USD: Currency in Play for Neighboring 24 Hours
The GBP / USD will be the currency in play for the nearest 24 hours. Tomorrow, U. K. is set to release its GDP figures along with Personal Consumption, Exports and Imports at 9: 30GMT or 4: 30AM EST. Next in the future, the U. S. will release its figures for Existing Homely Sales at 15: 00GMT or 10: 00AM EST. The GBP / USD pair is currently deep within Scope Trading Tract which we wrap up according to Bollinger Bands. The Bands have became rarely tight over the course of two weeks through the pair failed to create branch discrete tension. Hence, resistance is originating at 1. 4850 which is 2nd Standard Change of the Bollinger Bands that coincides with better line of a triangle which proved to be efficient resistance a character of times. Nevertheless, if the pair general public lower, foothold could be tested around 1. 4150. Block represents the 1st Standard Peculiarity of the Bollinger Bands along with being the lower line of the triangle formation.
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