Risk aversion drove FX markets once again yesterday and once again it was the high yielders that took most of the selling pressure as 'carry trades' continued to be unwound. A faltering Wall Street failed to come to the rescue of USD bears and confidence fell flat once again. However there has been the first sighting of a turnaround overnight as dealers/traders may have decided that the push has gone far enough and some substantial buying back of short Usd/Yen positions has triggered a tentative selling of US dollars against the majors once again. Rhetoric from Japanese PM Fukuda 'the Yen is appreciating too fast' and comments from IMF's Deppler 'the Euro is not at an uncomfortable level' has halted the US dollars rally for now. However the markets are still very nervous and looking for the possibility of more sub-prime bad news. We are still biased to a lower USD but confidence is needed.
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