Forex News and Events:
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Monday saw no let up in volatility as market illiquidity continued. EUR/USD reversed all the gains made in Asia and much of those made on Friday after option related selling ahead of 1.3000 barriers proved to be insurmountable. With Asian central banks and speculative accounts selling into a weak market, the Euro was on extremely thin ice. Pressure was also increased when Fitch placed a question mark over Austria’s fiscal position while Trichet remarked that the ‘Euro Zone financial system is under severe strain’ while Gonzalez-Paramo chimed in with ‘countries could face insolvency problems due to fiscal spending’. The Pound had a strong day holding onto recent gains against the Dollar and making back a lot of ground against the Euro. This was thanks to a reported GBP/AUD buy order in the order of £500 million. During the afternoon, risk aversion reared it’s head again after Canada reported eye wateringly bad retail sales figures (-5.4%, month on month) and perception of the US financial sector nose dived after reports that AIG are about to announce a loss of some $60 billion and are to seek another huge cash injection from the US authorities. The Dow Jones Index ended the day down 3.4%, it lowest level in some 11 years. Yet, despite the bad news, the Dollar has remained stubbornly bid and appears to have taken the place of the JPY as the currency of choice for safe haven flows following the dire state of the Japanese economy. With worries over the global financial sectors rife and equities still falling, it appears that many speculators were still playing the rather old game of buying the JPY as a risk aversion ploy. This soon backfired on them as USD/JPY this morning and JPY crosses headed higher. USD/JPY eventually tripped stops above 95.00 while EUR/JPY rose above 121.00. Yen fell to a 12-week low against the dollar before government reports this week that may show the world’s second-largest economy is deteriorating, reducing the allure of the currency. The days of buying the JPY in a flight to quality seem to be well and truly over. IT appears to be losing some of its safe-haven status. Today’s main highlight should be Bernanke’s semi-annual testimony before the Senate. This begins at 15.00 GMT.
