The Usd strengthened in the Asian Session, as concerns over the longer-term health of the UK banking sector paired back risk appetite. In addition, Spain 's sovereign ratings downgrade (AAA to AA+) by S&P caused significant pressure on the EurUsd. The EurUsd traded down from 1.3350 to 1.2943 session lows, while the UsdJpy was stable, trading between 90.70 and 90.10. Asian regional indexes are trading lower, with only Shanghai bucking the trend. The general sentiment is that equities will face a challenging day, as UK bailouts continue and historically the DJIA closes lower on inauguration day. Commodities traded lower, with crude wti falling below $34.00bll. The rally in risk appetite at the start of 2009 has undoubtedly grinded to a halt. However, this time governments have heard the warning and have reacted hastily to avoid a further disintegration in market confidence. The failure of sentiment to briefly turn positive will weigh on our ultra short term forecast for a correction in the Usd strength and we again turn our sights on EurUsd at 1.2400
The downgrade in Spain 's long term debt to AA+ has been expected, since the country was placed on the rating agencies negative watch list a week ago. However, the move illustrates the divergence of economic activity within the Eurozone economies and will pressure the ECB for more aggressive action on rates and translate in continued Euro weakness. We are currently anticipating rates to move close to zero in 2009, as all factors point toward continued deterioration in Eurozone economies.
The UK government announced yesterday new actions meant at improving access to credit in the UK 's financial system. The Treasury has announced a new state-controlled insurance company focused on protecting bank customers in case of default. Other details include a increased in the goverments ownership in a major bank, and a new £100bn mortgage guarantee scheme to underwrite lending between financial institutions & banks.
The obvious highlight of the day will be US. President-elect Barack Obama inauguration at 12:00est.