Forex markets traded mixed on Thursday. Trading was light ahead of the European holiday tomorrow and participants seemed to use the light trading conditions to move the market in both directions.

Early in the day the major news was limited to a couple of positive economic reports out of the U.S. These stories helped support the thought of the start of a U.S. economic recovery and bolstered trader appetite for risk.

Around mid-session news that Chrysler filed for bankruptcy interrupted the stock market rally and triggered a slight case of risk aversion. This risk aversion helped the Dollar regain some of its early losses but by the close, the major pairs finished with mixed results.

The Euro closed lower. Some of the weakness was triggered by diminished trader appetite for risk following the topping formation in the stock market caused by the Chrysler bankruptcy. Others feel that uncertainty over how much the European Central Bank will reduce its benchmark interest rate or what its new quantitative easing plan will encompass encouraged selling late in the session. End of the month position squaring probably had some influence on the lackluster trade also.

The British Pound posted a small gain after a sharp rally overnight. The rally in this market was driven primarily by greater trader appetite for risk as economic factors are still indicating a weaker Pound. Look for lower markets to follow as long as the U.K. economy continues to show signs of contraction and the budget deficit continues to widen. A break in global stock markets will likely trigger fresh selling pressure in the GBP USD.

The strong overnight rally in the equity markets triggered a rally in USD JPY early in the trading session as traders renewed their interest in the carry trade by selling the lower yielding Yen for a chance at better returns in higher priced assets. This move could be short-lived if equity markets post a top.

The stock market turned weaker late in the trading session today after Chrysler declared bankruptcy. This served as a reminder to many traders that the economy is still taking victims. Traders are also beginning to think that the equity markets have rallied too much, too soon. A top in the stock market at this time will send traders back to the Yen and trigger a reversal in the carry trade.

The USD CHF posted a strong reversal bottom on Thursday. Traders expressed their concerns about a possible intervention by the Swiss National Bank by going long the Dollar and selling the Swiss Franc. Talk is circulating that the SNB is becoming overly concerned about the threat of deflation and is willing to purposely weaken its own currency to protect the economy.

The Australian Dollar made a new high for the year versus the U.S. Dollar on increased trader appetite for risk. This rally failed to attract any new buyers as traders became concerned that the stock market had rallied too much, too soon and that news regarding the bankruptcy at Chrysler would cause investors to become more risk averse. Technically, the AUD USD posted a reversal top which could lead to follow-through selling tomorrow and trigger the start of a major top.

The NZD USD is expected to remain under pressure for some time following the rate cut by the central bank and a bearish statement regarding the economy.

On Thursday the Reserve Bank of New Zealand cut interest rates by 50 basis points to 2.50% and issued a bearish statement that rates could remain low until 2010 because of continuing weakness in the economy. As long as demand from China and Japan remains down, look for lower New Zealand exports to hurt the economy

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