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.