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.