We have been seeing a breakdown between correlations in FX and equities this morning as risk appetite in the currency market has been healthier, while equity prices are only mildly bid. Looking ahead, the markets will be keenly focused on the Bernanke address at 17:30GMT, while also preparing for the later release of the FOMC Minutes due at 19:00GMT.
MIDDAY SNAPSHOT & ANALYSIS OF SELECTED CROSS RATES
We have been seeing a breakdown between correlations in FX and equities this morning as risk appetite in the currency market has been healthier, while equity prices are only mildly bid. All of the Yen crosses trade higher on the day, and Eur/Chf has also been well bid. Following up with recent reports from its fellow rating agencies, Fitch has released a report outlining the risks associated with exposure by western banks to Eastern European emerging markets. Dollar/Yen has been rallying impressively with gains picking up momentum as talk of a large RHS fix order circulates. On the data front things have once again been less than impressive with both Canadian and US housing numbers coming in weaker while US industrial production has also been a disappointment. Fed Pinalto was on the wires earlier saying that growth will fall sharply in H1 of 2009. She does however provide some optimism saying that the TALF program has helped to get the credit markets going again. S&P has downgraded MBIA Insurance Corp to BBB+ from AA. A Swiss bank sale of Eur/Usd for a large European corporate has accelerated setbacks in the major which looks set for a breach of psychological support at 1.2500. Looking ahead, the markets will be keenly focused on the Bernanke address at 17:30GMT, while also preparing for the later release of the FOMC Minutes due at 19:00GMT.
Eur/Jpy - While the broader trend remains grossly bearish, the cross has been in the process of attempting to carve some form of a base since bottoming by 112.10 (21Jan low). A higher low already has been confirmed at 113.15 (2Feb low) and we could now be in the process of attempting to carve the next higher low by 114.90(12Feb low), with the market just now testing rising trend-line support. Wednesday's price action has been constructive with the cross breaking back above Tuesday's high to end a string of consecutive daily lower highs. Look for a break back above 117.65 to accelerate gains back towards and through 120.05 (9Feb high) over the coming days. A break back below 115.65 will however negate, and keep pressure on the downside.
Eur/Nzd - The market has been locked in a tight consolidation following the latest drop off of the +15-year highs by 2.5805 posted in early February. While the broader bullish structure remains firmly intact, shorter-term technical studies suggest deeper setbacks ahead in favor of a downside break of the recent consolidation lows at 2.4300 (12Feb low). Look for a near-term break of 2.4300 to open an initial retest by 2.3980 (9Feb low), with a further acceleration on a break of the latter back towards the 100-Day SMA (2.3445), which has acted as formidable support on dips throughout the uptrend.
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