Uncertainty over the outlook for the global economy is back at the forefront of investor minds with the safe-haven currencies once again finding favor and US equities pulling back sharply. The catalyst for the moves have come from a number of developments overnight and into the US morning.
MIDDAY SNAPSHOT & ANALYSIS OF SELECTED RATES
Uncertainty over the outlook for the global economy is back at the forefront of investor minds with the safe-haven currencies once again finding favor and US equities pulling back sharply. The catalyst for the moves have come from a number of developments overnight and into the US morning including, bearish Kiwi comments from RBNZ Spencer, a warning of a potential downgrade to the US AAA credit rating, a gloomy quarterly inflation report from the BoE, disappointing retail sales in the US and a downbeat outlook on home prices from Fitch. Business inventories and import prices were also released but failed to materially factor into price action. The Canadian Dollar though weaker on the session has help up relatively well, aided by the much better new motor vehicle sales which put in the largest monthly gain since January 2008. Meanwhile Treasury Secretary Geithner proposes that systemically important financial firms pay into a systemic risk fund, while also announcing that TARP will reopen for smaller banks. Elsewhere, ECB member Kranjec has said that the central bank is likely to increase its asset-purchase program and may also widen the range of products it may buy. All major US equity indices track some 2% lower on the day while commodities are marginally bid.
ANALYSIS OF SELECTED RATES
Nzd/Usd: With equity prices starting to roll over, it might be worth paying attention to the potential bearish outside day setting up in Kiwi on Wednesday. The currency has been a relative underperformer on the day with bearish Kiwi comments from RBNZ Spencer seen weighing early on. This in conjunction with a broad based flight to safety, should put the higher yielding currency in a very vulnerable and exposed position. We would however recommend waiting for some confirmation with many of the other major currencies still being well propped ahead of their respective previous daily lows. This is highlighted by price action in the Euro after the major failed to take out Tuesday’s 1.3560 lows despite a major retreat this morning.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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