Bottom Falls Out

By IBTimes Staff Reporter | January 26 2010 3:38 AM

Major USD Pairs: Overview

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The Eurodollar had been trading above its 50 DMI in an unconvincing uptrend since late last Thursday. However, early this morning, the bottom fell out and the pair plunged deep below this support level. In fact, the dollar took relatively sharp gains across the board in the latter part of the Asian session. Asian equities plunged after news that China had decided to implement higher reserve requirements for its banks as a measure to tighten its grip on the economy and reign in inflation. The Hang Seng Index fell 1.6 percent, and the Nikkei fell over 1.7%. The China Enterprises Index of top locally listed mainland Chinese stocks was down 2.35% at 11,580.37 and the Shanghai Composite Index fell 2.05% to its lowest in nearly three months, ending the morning at 3,030.885. Trading volumes were thin, signaling that underlying sentiment remained very weak.

Concern abut monetary tightening in China boosted risk-aversion in the currency markets as well, causing investors to dump higher-yielding, riskier currencies in favor of the US dollar and Japanese Yen.

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