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.