Daily Market Update 07/04/2008

London Session
Published: April 7, 2008 5:02 AM

Traders participating in the opening London Session of the week may need a neck brace following the early hours of a whipsawing market. In the midst of a thin environment, currencies have been easily pushed around by large FX players that dictated the direction and flow of trading. In the absence of external forces such as economic data and global news headlines, those that fit the bill of ''size traders'' seized the opportunity to impose their will on the US dollar. On the open, the Greenback displayed power, crushing other currencies in a continuation of the Asia theme. In an instant, however, the US currency faltered and found itself on its heels. The result thus far has been very large ranges, yet very little net changes.

Short-term charts painted a picture of consolidation heading into European trading. Asia gains for the dollar were hefty, so a pause was to be expected. Once the moves were digested, London traders attacked in the same fashion, pummeling EURUSD from 1.5680 to a low around 1.5630, solidifying a downside break of the multi-hour trading range. USDJPY found a greater move, ascending through 102.50 to peak near 102.85, propping EURJPY modestly higher in the process. Upon EURUSD hitting the aforementioned 1.5630 zone, the pair immediately spiked in the opposite direction and plowed higher. Shorts were forced to cover their positions, fueling the rally to 1.5700. EURJPY accelerated its momentum higher and rocketed north of 161.00, aided by a very resilient USDJPY (which appeared to have a clean breakout to the topside in a pattern that mildly resembled a ''bull flag''). As of this writing, the dollar remains a winner of the day, yet the movement for the London Session has thus far been benign.

The week ahead is full of important economic data and events. The primary focus will be upon those that make the interest rate decisions for each country. First off, the minutes from the US Federal Open Market Committee (FOMC) meeting of March 18th will be released. The next session will bring an interest rate decision from the Bank of Japan, which is widely expected to maintain the 0.50% interest rate. On Thursday, both the Bank of England and the European Central Bank will also announce decisions on interest rates. As of today, the market consensus is for a quarter-point cut by the BoE (to 5.00%), while the ECB holds rates at 4.00%.

Daily Market Update 07/04/2008

Asia Session
Published: April 7, 2008 1:03 AM

What won't go down must go up? Well that's what we saw tonight in the start of the trade week with the US Dollar. With the Greenback on the mats and being given the 10 count, it picked itself up and started fighting back. The dollar made its biggest move in over a week on the thought that future interest rate cuts may be limited due to rising inflation in the US. The dollar made gains against the Euro, Yen, Pound and Swiss Franc.

In a rather dramatic fashion, the dollar took off against the Yen, sending USD/JPY from early session lows of 101.50 to late session highs on near 102.60. The Yen crosses followed suit with gains. Yen weakness can also be attributed to the falling popularity of Prime Minister Fukuda, whose approval rating is a mere 24%. As the dollar got stronger the Euro fell from the 1.5730 range to lows near 1.5650. USD/CHF made a nice run to reach session highs near 1.0120. The pair to buck the dollar trend was USD/CAD which slid to the 1.0068 neighborhood. Australia had a weak Trade Balance number signaling a record trade deficit, and that coupled with higher inflation pushed AUD/USD lower.

The big picture on the horizon is The G7 meeting in Washington this week. As usual it will be a wait and see approach to see if any members come out and comment on the forex markets. With the Dollar Index down 5.8% so far this year and talk of it getting pummeled even more, it would be a lark if comments aren't made.

Daily Market Update 04/04/2008

London Session
Published: April 4, 2008 5:17 AM

The final London Session of the week leads market players straight into the much-anticipated release of the March US Non-Farm Payrolls employment report. Traders have been rightfully nervous, limiting participants. As far as the trading environment, liquidity has been thin and activity has been choppy. Heading into the London open, activity was virtually non-existent. Once the clock struck 0700 GMT (0300 EDT), US dollar bears seized the opportunity to crack the Greenback. While the short-term charts offered ideal setups for this to occur (bullish consolidations in EURUSD and GBPUSD), the fundamentals behind the move are unknown. It is likely those that caught the dollar rebound from the Monday lows took profit.

Today's USD slide has been efficient and decisive. Across the board, we have seen little get in the way of straight price movement. The brisk ebb and flow has been forceful, yet orderly. EURUSD jumped from 1.5650 to a peak above 1.5720. Cable has followed the same path, ascending from 1.9950 to 2.0035 at its highs. On the downside, USDCHF slipped below 1.0100, but continues to hold above firm support in the 1.0065 area (100 hour simple moving average, prior lows). USDJPY has held up a bit better with the assistance of EURJPY, which has popped over 50 pips to near the 161.00 zone. Considering the focus on the data to come in a few hours, the London Session has offered traders ample scenarios for profitability.

The number on the minds of all investors, traders, and economists around the globe is -50,000. This is the current analyst consensus for the result of the March reading of US Non-Farm Payrolls, the most-watched statistic of employment. Prior to that number, though, is the jobs data from the United States' neighbor to the north, Canada. This event tends to be extremely volatile for the Canadian Dollar. To wrap up the week, traders will see the March Canadian Ivey Purchasing Mgrs. Index at 1000 EDT, with the expectation of 62.5.


Upcoming Economic Data Releases (New York Session)

0830 EDT Canada - Mar Net Change in Employment, consensus: 15.0k (relevance: high)

0830 EDT Canada - Mar Unemployment Rate, consensus: 5.8% (relevance: medium)

0830 EDT US - Mar Change in Non-Farm Payrolls, consensus: -50k (relevance: CRITICAL)

0830 EDT US - Mar Unemployment Rate, consensus: 5.0% (relevance: medium)

0830 EDT US - Mar Change in Manufacturing Payrolls, consensus: -35k (relevance: medium)

0830 EDT US - Mar Avg. Hourly Earnings, consensus: 0.3% MoM, 3.6% YoY(relevance: medium)

0830 EDT US - Mar Avg. Weekly Earnings, consensus: 33.7 (relevance: low)

1000 EDT Canada - Mar Ivey Purchasing Mgrs. Index, consensus 62.5 (relevance: high)

Daily Market Update 26/03/2008

London Session
Published: March 26, 2008 8:04 AM

The mid-week London Session brought a tale of two tapes. Through the London open, until an economic data release at 1000 GMT (0500 EDT), the FX market held a low-key personality, bouncing around within mild ranges. Following a robust reading on the overall health of the German economy, traders heightened the pace of price movement. Volume and volatility immediately jumped. As the brisk trading environment got the juices of eager market players flowing, comments out of the European Central Bank's (ECB) Trichet and the Bank of England's (BoE) King provided multiple shots of adrenaline. We were off to the races as the Euro continued its torrid recovery to the topside, while the British Pound collapsed under the cautionary words of the Bank of England members.

Traders bided their time in the early hours of London trading, pushing EURUSD on either side of 1.5600. At 1000 GMT (0500 EDT), the March German IFO results easily surpassed expectations in all three measurements. The US dollar immediately softened across the board, most notably versus the Euro. The pair gapped up from 1.5595 to 1.5615 on the release and proceeded to plow up to 1.5700 at an accelerated pace. GBPUSD followed, while USDJPY plunged from 100.00 to an eventual low near 99.00. Around 1045 GMT, commentary out of the ECB and BoE began to flow at a rapid pace. The ECB President, Jean-Claude Trichet, derailed any hopes of a future rate cut with a very clear and specific message regarding the need for price stability and vigilance against inflation. As the headlines crossed, EURUSD continued to ascend, pulling Cable over 2.0100. Simultaneously, however, cautionary words about the UK economy from the bank of England Governor Mervyn King forced a massive reversal in the British Pound. The currency went into a freefall, dropping over 150 pips to 1.9950. EURGBP skyrocketed an astonishing 100 pips – a massive move for this currency pair – as the Euro remained resilient. In other parts of the FX market, the high-yielding Aussie and New Zealand dollars took the ride higher, while USDCHF felt the same fate as USDJPY, sliding back below parity.

Today's London Session has been driven solely by fundamental news, a rarity in the course of everyday trading. Typically, four forces are at work: fundamental, technical, structural, and psychological. New York traders will undoubtedly digest the reams of information presented over the past few hours and attempt to resolve how it will affect the future interest rate moves of the US Federal Reserve.

Daily Market Update 25/03/2008

Asia Session
Published: March 25, 2008 11:37 PM

USD sellers managed to close the NY session firmly in control as EUR/USD remained firmly above 1.5600 and GBP/USD above 2.0000. However, we saw mostly choppy trading in Asia as there appeared to be a lot of two way action and it seems that buyers/sellers are battling. It was just last week we saw the USD rally significantly against major currencies but the recent USD sell off is putting that rally to the test: do we continue lower or is the USD ready to rally?

Economic data continues to point to weakness in the US as consumer confidence and home prices fell more than expected. The only bright spot for the USD appears to be the pull back in commodities as the two are negatively correlated. Those looking for the next move in the USD would be prudent to pay attention to the action in commodities. If oil or gold make new highs, look for EUR/USD to test all-time highs.

Looking forward we expect volatility to continue to dominate the market. There are still some concerns about the extent of potential write downs by US investment banks. Ironically, we could hear weakness in other countries which could actually put a bid in the USD. In Asia we are expecting Japanese CPI and employment data.

Upcoming Economic Data Releases:
Germany: (5am ET) IFO Business Climate and Expectations (relevance: medium).

Daily Market Update 25/03/2008

New York Session
Published: March 25, 2008 5:29 PM

The USD stayed under pressure in NY trading after giving up ground earlier in the European session. EUR/USD grinded higher for most of the day, gaining from 1.5570 to as high as 1.5660, as the greenback suffered under more data suggesting the US outlook is far from improving. The January S&P/Case-Shiller index of US home prices in 20 metropolitan areas fell to its lowest level since the series began, with home prices dropping -10.7% from year ago levels. Worse still, US March Conference Board consumer confidence plunged to 64.5 from the February reading of 76.4, far below expectations of a decline to only 73.5 and the lowest level since March 2003. The Conference Board's six-month expectations index also posted a sharp drop, levels last seen during the Watergate scandal and the 1973 oil embargo, suggesting consumers do not see the economy improving anytime soon.

USD/JPY also lost ground, falling from about 100.40 to a low near 99.60 before rebounding to 100.00 on the back of buying of JPY-crosses, like EUR/JPY and AUD/JPY. The JPY-crosses initially dipped lower as USD/JPY lost ground on the weak US data, but later recovered as US stocks shrugged off the data and turned positive. The S&P 500 closed up about 0.25% and the NASDAQ gained just over 0.6%, not a bad result given the data. The optimism emanating from Wall Street over the last several sessions appears to be waning in the face of renewed analyst downgrades to firms' outlooks and the potential for still greater credit market losses ahead.

In other markets, gold rebounded sharply, gaining $23 to $938.50/oz, as the USD turned back to the weak side. Oil prices traded in a relatively narrow range and closed higher by about $0.60 at $101.50/bbl.

Upcoming Economic Data Releases (Asia-Pacific Session) prior forecast
3/25 23:50 JN Merchandise Trade Balance Total FEB -¥79.3B ¥1155.4B
3/25 23:50 JN Adjusted Merchandise Trade Bal. FEB ¥861.9B ¥769.2B
3/25 23:50 JN Corp Service Price (YoY) FEB 0.80% 0.80%
3/26 1:00 NZ Finance Minister Cullen Speaks on Economy

Daily Market Update 24/03/2008

Asia Session
Published: March 24, 2008 11:59 PM

USD sellers returned full force in today's Asia session in the first real test of the USD bulls in a week. EUR/USD broke through 1.5450, running all the way through 1.5550. USD/JPY was also weak slicing through 100.50 but holding above 100.00. There wasn't any confirmed news regarding the sharp sell off but we heard rumors of non-official sellers of the USD (also known as sovereign wealth funds). JPY crosses were mostly higher as equity markets continue to trade higher.

Looking forward, London is back from vacation and we should expect to see more depth to the market. It will be interesting to see if the recent USD rally was a correction in a longer term trend lower in the USD or the beginning of a bottom in the USD. Expect commodities to trade in a negative correlation to the USD so if we see gold get back over $1,000 we could renewed interest to sell the USD. On the economic front, tomorrow morning is US consumer confidence which is expected to weaken further to 73.5.

New York Session
Published: March 24, 2008 5:05 PM

The 'feel good' rebound in US stocks and the US dollar continued on Monday in NY trading, as risk appetites improved further on the first full session after the Easter Holiday and carry trades (long JPY-crosses like EUR/JPY and AUD/JPY) came storming back higher. USD/JPY led the way higher for the greenback, rising from NY opening levels around 99.80 to as high as 100.90. News of an improved buyout offer for a struggling US brokerage house improved stock market sentiment, which carried on into riskier assets in general. The US dollar's gains were mostly concentrated against the JPY, with other key currencies, such as the Euro and Canadian dollar, rising slightly against the greenback as demand for those currencies against the JPY offset USD strength. Commodity markets remained under pressure, suggesting there might be a cycling out of commodity bets and into JPY-carry trades. Gold fell about $5 to close around $914.00/oz after trading to a low around $906/oz. Oil prices also fell, losing about $1.30 to nearly $100/bbl in futures trading.

US existing home sales for February rose nearly 3% to 5.03 mio units on an annualized basis, much better than the expected decline to 4.85 mio homes. Median home prices, however, fell 8.2% relative to year-ago values, the largest drop since 1968 when the data series began, keeping thoughts of a rebound in the US housing market to a fleeting daydream. US Treasury notes and bonds were sold aggressively, with 10-year yields gaining over 20 bps to around 3.55%, as investors moved away from the security of government bonds and dipped their toes back in riskier assets like stocks.

London Session
Published: March 24, 2008 6:24 AM

Easter Monday severely limited the number of market participants today as Europe and Australia are both on holiday. Trading conditions were typical for such a session, with very light volume and minimal volatility. In addition, there were no economic data releases. The major financial news to hit the wires focuses upon the ongoing saga of the J.P. Morgan (JPM) buyout of Bear Stearns (BSC). Last week, it was announced that the Fed facilitated a deal between the two major US investment banks, yet many believed the price was entirely too low. As reported by multiple media sources, it appears that JPM is raising its $2.00 bid to acquire BSC. A variety of numbers have been rumored, with most in the $8-10 area.

The Greenback advance of Asia has been entirely erased during the early London hours. EURUSD has bounced over 100 pips off its lows just above 1.5340. EURJPY has flown higher as well, dragging USDJPY to the topside. On the flip side, USDCAD failed to hang on to the 1.0300 handle after notching a high near 1.0310. Despite a pullback to 1.0260, the pair is above last week's 1.0233 close, likely due to soft crude futures (WTI is -$1.20 to $100.64/barrel). Other currencies that saw action were the New Zealand and Australian Dollars (NZD and AUD). NZDUSD rose from a low just above 0.7885 to a high around 0.7950. AUD/USD advanced about 75 pips since the US calendars flipped to March 24th, plowing from 0.8985 to 0.9060. These currencies broadly represent the Carry Trade, reiterating the theme that some investors are willing to enter positions of perceived risk. It is noteworthy to say that the price movement has probably been exaggerated due to the absence of many London traders.

On the economic data front, the numbers of the most importance lie in the back-half of week ahead, highlighted by Wednesday's German IFO result and Thursday's release of US Q4 GDP. As for the Monday agenda, the lone release comes at 1000 EDT in the form of US Existing Home Sales. Trading conditions continue to be very light and odds are that New York traders will lull through a session of below-average volume.

Earnings Reports

Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Morgan Stanley all said this week first-quarter profits fell less than analysts' estimates. Banks around the world have posted $195 billion in writedowns and credit losses, according to Bloomberg data, due to rising delinquencies on mortgages to U.S. homeowners with poor credit.

The euro headed for a weekly loss on speculation growth in the 15 countries that share the currency will slow and subprime loan losses will spread at European investment banks.

Credit Suisse Group, Switzerland's second-largest bank, said it will write down $2.65 billion after a ``small number'' of its traders deliberately mispriced residential mortgage-backed bonds. Credit Suisse also said it's unlikely to make a profit this quarter.

The French statistics office today cut its growth forecast and raised its inflation forecast. Growth in France, Europe's second-largest economy, will slow to 0.3 percent in the second quarter from 0.4 percent in the previous quarter.

French Growth

``The euro has some room to adjust lower,'' said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. ``We're getting confirmation that subprime is shifting to the European financial sector. The euro-zone economy will start to slow from here on.''

The euro may fall to $1.53 next week, he said.

Oil has dropped 8.9 percent from a record this week, and gold fell from an all-time high.

The U.S. Dollar Index
traded on ICE Futures in New York was little changed at 72.71, after rising for three days. The gauge fell to a record 70.698 on March 17, the same day the dollar fell to an all-time low against the euro.

``Commodities -- one of the few remaining long trades --have turned south,'' BNP Paribas SA strategists led by Hans-Guenter Redeker wrote in a research note yesterday. ``The currency market is next in line, forcing investors out of yielding positions. We underline our bearish commodity currency call. The dollar will rebound.''

The dollar may rise to 5.47 kroner and 85 cents per Australian dollar at the end of this year, BNP Paribas forecast.


`Calm Look'

The Fed also put taxpayer money at risk by making available up to $30 billion to JPMorgan Chase & Co. for the purchase of Bear Stearns Cos.

The Fed cut its target lending rate by three-quarters of a percentage point to 2.25 percent on March 18, saying ``measures of inflation expectations have risen.'' The cut was smaller than the 1 percentage point traders had expected with 90 percent certainty before the meeting, according to futures traded on the Chicago Board of Trade.

The tumble in commodity prices and the dollar's rebound gained momentum after the size of the cut sapped demand for oil and gold as a hedge against accelerating inflation.

``The dollar's rise against commodities currencies is likely to extend into next week,'' Soma said. ``Traders took a calm look at their bets and realized they can't continue to buy commodities in this environment.''

The Australian dollar may fall to 89 U.S. cents in a few days, Soma forecast.

Dollar Set for Weekly Gain on Fed Steps to Restore Confidence

March 21 (Bloomberg) -- The dollar headed for the first weekly advance against the euro and the yen in a month after the Federal Reserve's decision to accept more collateral for loans eased concern about banks' access to capital.

The U.S. currency rose against the pound and the Swiss franc this week after the Fed made an emergency cut to the rate it charges banks to borrow and said it would swap Treasuries for mortgage-backed securities. The Fed also lent $28.8 billion to U.S. securities firms, its first extension of credit to non-banks since the Great Depression.

``The dollar is enjoying a bounce,'' said Hideki Amikura, deputy general manager of currencies at Nomura Trust and Banking Co. in Tokyo, a unit of Japan's largest brokerage. ``The Fed is working to restore confidence. U.S. investment bank earnings weren't as dire as some predicted.''

The dollar traded at $1.5430 per euro as of 7:05 a.m. in New York, set for a 1.4 percent gain in the past five days, the first weekly advance in more than a month. The dollar bought 99.44 yen, little changed from late yesterday and up 0.4 percent this week, the first weekly gain since Feb. 15. The yen rose 1.2 percent this week to 153.53 per euro, touching the strongest since August.

The pound fell 1.8 percent this week to $1.9830. The dollar gained 1.1 percent to 1.0090 Swiss francs.

Currency moves may be exaggerated today as trading volume will be less than half of normal due to public holidays in the U.S., the U.K. and other financial markets, said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co.

Holiday Exaggerates Moves

The dollar may rise to 101 yen in the next few days, Nomura Trust's Amikura forecast.

The dollar bought 5.2571 Norwegian kroner from 5.2630 late yesterday, when it touched the highest since Feb. 26. The U.S. currency was up 3 percent against the krone this week. Australia's dollar traded at 90.17 U.S. cents, close to a five- week low and on course for a 3.9 percent decline this week.

Fed officials announced on March 11 a program to swap $200 billion in Treasuries for debt including mortgage-backed securities. Yesterday, the Fed expanded collateral eligible for its auction of Treasuries to include bundled mortgage debt and securities linked to commercial-property loans.

Earlier this month, the Fed increased the size of separate funding auctions to $100 billion in March from a previously announced $60 billion.

The Fed said yesterday it had lent $28.8 billion to large U.S. securities firms under the program announced on March 16, its first extension of credit to non-banks since the 1930s.

Daily Market Update 21/03/2008

Asia Session
Published: March 20, 2008 11:18 PM

The market took a much needed break in today's Asia session and the pause has given one time to reflect on a week that will go down in history. What began with the Fed saving the financial system by helping JP Morgan buy Bear Stearns ended with a potential inflection point in markets. EUR/USD made all-time highs but has had a good pull back as commodities had one of their worst weeks in history. Equity markets also rallied but interestingly we have not seen a bounce in the CHF and JPY crosses which in the past have been highly correlated with equities.

Is the tide changing for the USD? The less than expected Fed rate cut could be a signal that the Fed is still concerned with inflation. Also lower commodities could further help to dampen inflation, increasing the real US interest rate. From a capital flows perspective, the lower US equity markets combined with the weak USD could provide a compelling value proposition to international investors. Interest rate differentials could also begin to narrow as other countries face slower growth and therefore cut interest rates. Picking bottoms and tops can be dangerous but we could be nearing a turning point.

Daily Market Update 20/03/2008

London Session
Published: March 20, 2008 8:53 AM

The fall in commodities, led by sub-$100 crude futures, fueled a mammoth rally in the US dollar. Volatility remains high as London traders squeeze out the last hours of reasonable trading conditions as we approach the holiday weekend (Easter). Market participants around the globe remain extremely nervous, failing to believe that the colossal rally in assets of risk was a concrete bottom. Since Tuesday, traders in most markets have participated broad-based reversal of multi-year themes such as the bulletproof bull market in commodities and the bear market in the US dollar. As is often the case, the surge has been exacerbated by the lopsided positions held by momentum players that have suddenly bailed out, accelerating the migration away from assets of perceived risk.

To put the theme and psychology of the FX market into perspective, it was on Monday that EURUSD posted a fresh all-time high north of 1.5900. We currently sit over 450 pips lower as the movement in the pair coincides with those of equities and commodities. (Note that commodities are US dollar-denominated. When the USD strengthens, by default, commodities become more expensive and less attractive to those outside the US.) Unlike yesterday's rumor-filled London Session, we have seen a clean, orderly rally in the Greenback. EURUSD has collapsed from 1.5600 to 1.5450 within a few hours time, while USDCHF has proved to be an immense winner, blasting through parity and dealing above 1.0150. The British pound has been resilient, largely due the robust results in UK Retail Sales (consensus: -0.2% MoM, actual: +1.0%). This has sent EURGBP reeling. Once support at 0.7850 broke, the pair spiraled down to 0.7785. Lastly, USDCAD has taken another leg higher, leaping over important daily moving averages in the process. The Canadian Dollar has suffered for two reasons: the US dollar rally and the weakness in crude prices.

New York traders will also look to get the most of their final full-staff trading day of the week, as many are expand the coming holiday weekend. The economic agenda is full, but the data is largely second-tier. All will be watching the news flow associated with the current credit crisis along with the performance of the US equity market.

Daily Market Update 20/03/2008

New York Session
Published: March 20, 2008 5:53 PM

The USD continued to recover as commodity markets posted further sharp declines, with the CRB Index of 19 commodities posting its largest weekly loss since 1956. Gold fell another $34 to $910/oz and oil lost a little over $1 to close around $101.40/bbl after testing under $100 in early NY trading. In Forex markets, EUR/USD declined sharply in European trading, plunging from 1.5600 to around 1.5450 and spent most of NY testing the lows toward 1.5400. USD/JPY, however, came under selling pressure as the JPY-crosses (e.g. EUR/JPY, AUD/JPY) were hit hard again as speculative funds exited long-standing positions as commodities crumbled. USD/JPY fell from about 99.50 in early NY trading to a low around 98.50 before rebounding back toward 99.50 as US stock market gains accelerated in the afternoon. US stocks posted a 2+% gain on the day, led by financial stocks as fears over the credit crunch began to subside in the face of positive earnings reports and ongoing Fed liquidity measures.

US data released today did little to alter the picture of a slowing US economy. Weekly first-time jobless claims rose from 356K to 378K and continuing claims also posted another increase, rising from 2833K to 2865K, providing further evidence of a softening jobs market. The March Philadelphia Fed Index of manufacturing in the region posted a better than expected improvement to -17.4 from the prior -24.0 and expected -19.0, but Feb. Leading Indicators fell in line with expectations, declining 0.3% MoM.

Daily Market Update 19/03/2008 - New York Session

New York Session
Published: March 19, 2008 5:34 PM

Gold and oil were creamed today, with each losing around 5-6% on the day, as speculative positioning continues to be reduced in the face of ongoing financial market uncertainty. The 'de-leveraging' of open positions also saw the USD continue to recover against most other major currencies, with the notable exception of the JPY. EUR/USD fell to as low as 1.5580/85 after earlier peaking out around 1.5780/85. USD/JPY came under fresh pressure as the JPY-crosses, like EUR/JPY and GBP/JPY, the backbone of the 'carry trade', were pummeled on the back of falling stock markets, dropping from as high as 100.45 overnight to close around 98.75 in NY. US stock indexes gave back most of the gains following yesterday's Fed rate cut, with the S&P 500 losing about 2.4% on the day, despite better than expected earnings from a Key investment bank and the successful IPO of the largest US credit card issuer. Energy and mining companies led the way lower in shares as oil and gold prices plunged. Oil fell from just below $109/bbl to $103/bbl at its lowest before closing around $104.50/bbl. Gold prices fell to earth from an intra-day high of just over $996/oz., limping out at the end of the day just above $940/oz.

The 'de-leveraging' of hedge funds and other asset managers is being driven by reduced credit and tighter collateral requirements imposed by banks, forcing asset managers to exit open trading positions. Heightened volatility accompanied the unwinding of such trades, leading to sometimes chaotic price movements across all markets. Ongoing financial market uncertainty is likely to lead to further large market swings, especially as trading liquidity thins out going into the Easter Holidays this weekend. Japanese markets are closed on Thursday due to a national holiday.

Daily Market Update 19/03/2008

The mid-week London Session has brought a return to the fast and furious pace of volatile trading conditions and active rumor mill. Currencies have whipped around with a reckless abandon, instinctively popping and dropping at the sight of each official and unofficial news items that paints the computer screens of traders around the world. The constants in the market are as follows: the primary theme of corporate credit health concerns remain prevalent and residual effect is an electric nervousness circulating the globe. The net result of today's events has been profit-taking, shown by the significant reversal of yesterday's FX moves.

From the moment London traders saw the green and red arrows flashing, rumors of ''the next major financial institution on the brink of disaster'' briskly travelled. Folks dealt first and asked questions later, though virtually all speculation has been quelled by the top-tier employees of specific firms. Despite the public defenses of these companies, market players fear that ''Where there's smoke, there's fire'' and have meaningfully impacted their equity prices. This flight to safety – a mere 12 hours after Wall Street's largest rally in years – has transferred to the FX market. In a broad scope, the Japanese Yen has been bought across the board, pushing USDJPY back below 99.00 and EURJPY down to the 154.00 zone. During a specific 10 minute period in which liquidity worries made their way to a UK mortgage bank, volatility spiked as the British Pound collapsed from 2.0140 to 2.0040 versus the Greenback. EURGBP skyrocketed 70 points in a New York minute while GBPJPY went into an astonishing 370 pip freefall from 199.50. The markets are as jumpy as they come and traders simply cannot predict what the next moment will bring.

As if market participants did not have enough information to feast upon, important UK data came at 0530 EDT (1030 GMT). The employment figures took a back seat to the Minutes of the last Bank of England Meeting. The 7-2 ''no change'' vote was accompanied by dovish text. The message of future rate cuts was interpreted loud and clear by traders. Another wave of sellers briefly took GBPUSD below $2.00 before the pair bounced back above the psychologically significant level, rounding out a robust London range of two big figures (200 pips).

New York traders should be very active today...

Daily Market Update 18/03/2008

Forex traders spent Tuesday's Asia session digesting the unprecedented market volatility witnessed over the last 24 hours. Most of the majors saw choppy action during the session. USDJPY spent the session in a tug of war between buyers and sellers which caused the pair to consolidate around the 97.00 handle. The high yielding JPY crosses also dealt in the same fashion, with EURJPY meeting significant resistance into the 153.20s despite an impressive late day rally in New York. AUDJPY spent the session under considerable pressure shedding nearly another 100+ pips from session highs to its lows. The cross finally managed to find some buyers ahead of 88.80.

Although the action slowed from the previous session, EURUSD managed to grind out a decent late session rally, popping higher by 60+ pips, back towards the 1.5800 area. The greenback also saw weakness against the CHF, with USDCHF sliding 70+ pips to the downside to the .9790 area.

Ahead in the upcoming London session currency traders will look to see if the trend continues lower for the USD. On the data front, UK CPI is scheduled to be released which will likely add some dicey price action for GBPUSD, possibly revealing coming moves from the BoE.


Upcoming Economic Data Releases

UK: 0530ET CPI (MoM); Consensus .8%
UK: 0530ET CPI (YoY); Consensus 2.5%
UK: 0530ET RPI (MoM); Consensus .8%
UK: 0530ET RPI (YoY); Consensus 4.2%

Daily Market Update 17/03/2008

The unprecedented events that have occurred over the past 72 hours have changed the landscape and history of the financial world. The devastating combination of the bursting of US real estate bubble and belligerent use of complex financial instruments have reached further than most ever imagined. Over the weekend, it was widely reported by virtually every major media outlet that, with the assistance of the Fed, JP Morgan Chase would purchase Bear Stearns (the 5th largest US investment bank) for $2/share, an estimated 94% discount to its previous closing price (note: Bear Stearns stock closed at $57 on Thursday and $30 on Friday). The effects of the collapse of Bear Stearns have sent shockwaves throughout all global markets, crushing virtually all assets of perceived risk as investors fled to the safety of government bonds and (surprisingly) commodities. Additionally, the Fed has announced a -0.25% cut in its discount rate, this coming a mere two days before the FOMC rate decision. This climactic episode in financial market history rivals the greatest of collapses - from tulips in 17th-century Holland to the dot com mania of 2000 - the bursting of bubbles inevitably takes victims, and Bear Stearns has unfortunately ended its 85-year life at the mercy of the Credit Crisis.

As volatility reached tremendous heights and volume surged among illiquid conditions, nervous market players approached the FX market in a predictable fashion. The first move was to dump the Carry Trade - and asset of ''risk'' - with reckless abandon. The Japanese Yen has skyrocketed unlike anything seen since August 2007 as USDJPY plunged down to the mid-96.00s. EURJPY took a nosedive, dropping over 300 pips to 152.00. As EURGBP found incredible upside interest, GBPJPY fell into an abyss, surrendering an astonishing 700 pips to deal near 193.00. Next, the US dollar saw a colossal wave of selling, likely due to the United States being the epicenter of the current disaster. EURUSD initially screamed to a fresh all-time high north of 159.00, but felt a formidable reversal of 150 pips as rumors of an unscheduled European Central Bank meeting raced across trading desks around the world. USDCHF tumbled to a low over 250 pips from Friday's closing rate, but has since had an exceptional rebound to the upper-0.9800s.

We seem to finally be in the core of the credit crunch, but questions about the health of many financial institutions remain. There have even been reports published by major media outlets of the reluctance of certain parties to deal with specific counterparties. If an acceleration of this mindset occurs, the crisis could easily worsen. Additionally, the reaction of the US markets - fundamentally, technically, and psychologically - will be a key variable in the near-term environment. Bears are looking for more blood in the streets, while bulls are grasping for a stabilization.

Upcoming Economic Data Releases (New York Session)

0830 EDT Canada - Jan New Motor Vehicle Sales MoM, consensus: +6.5% (relevance: low)
0830 EDT Canada - Jan Manufacturing Shipments MoM, consensus: +1.0% (relevance: low)
0830 EDT US - Q4 Current Account Balance, consensus: -$183.8B (relevance: medium)
0830 EDT US - March Empire Manufacturing, consensus: -7.4 (relevance: low)
0900 EDT US - Jan Net Long-Term TIC Flows, consensus: $60.0B (relevance: medium)
0900 EDT US - Jan Total Net TIC Flows, consensus: $85.0B (relevance: medium)
0915 EDT US - Feb Industrial Production, consensus: -0.1% (relevance: low)
0915 EDT US - Feb Capacity utilization, consensus: 81.2% (relevance: low