Market Brief – 30Oct – US

Posted: 31 Oct 2009, 1:43am (TRADING: Notes)


US Session: USD Rallies Back on Weaker Equities

The lack of follow through in risk correlated trades has definitely raised some concerns over the sustainability of this risk rally. In particular, the better than expected Chicago PMI and U. of Michigan Confidence failed to translate USD weakness as the EURUSD collapsed to 1.4720. Intresetingly, the sell-off was almost exactly to our expectations of central bank tightening, with currencies such as AUD & NOK leading the losers. Markets have been debating whether these forward-looking indicators are increasingly pointing to a Fed that will need to adjust their monetary policy sooner rather than later (also supported by yesterdays GDP surprise). Measuring the price action in the FX markets it seems to suggest that interest rate differential over a pure risk appetite trade might be gaining traction. However, we are still in the camp that traders are overzealous and expect next week the the Fed (FOMC meeting) & labor data (NFP) will temper any gossip over the Fed early exit from its ultra loose monetary policy. In regards to weekend event risk , there has been plently of speculation that CIT will have to seek bankruptcy protection. A move that will have particpants rushing into the safehaven USD.

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