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Asian Session − RBA Cuts 100bp

Tue, Oct 7 2008, 08:46 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Market Brief

The Usd was slightly weaker in the Asian session, as an unexpected 100bp cut by the RBA helped spark risk taking. The EurUsd traded higher to 1.3618 from 1.3450, while the UsdJpy traded to 103.29 from 100.31. The AudUsd climbed to 0.7317, as the RBA action (expected 50bp) boosted traders hope that global central banks would start using interest rates to steady markets. In addition, the positive response in sentiment illustrates how effective these actions could be and builds a case for coordinated policy action. Earlier in the US session, the markets were entirely uninspired by the Fed's choice not to lower interest rates and, instead, just added more liquidity (intends to double the size of the Term Auction Facility (TAF). Wall Street witnessed another dismal day, with the S&P down 3.85%. However, we don't expect policy makers to sit idly by hoping that liquidity injections and the passage of the Emergency Economic Stability Act will solve all the financial sector's problems. We believe that central banks will follow the RBA's lead and begin to cut rates aggressively, including the Fed, which should end up around 1.25% (2.00% in the UK ). Asian equity markets are now trading lower, with the Hang Seng leading the losers at -4.96%. European stock futures are pointing to a mixed open. Volatility is still the name of the game, with the VIX trading at 52.05 and the strong correlation between Usd and volatility will keep the greenback firm.

The uncertainty in the Eurozone in the last few day has obviously hurt the Euro and highlighted which currency participants truly feel safe holding, but also the lack of unity among the Eurozone nations. Despite the summit on Saturday, which held the possibility of a coordinated timely response (and the Ecofin group of finance ministers meeting last night), individual nations are still resorting to local solutions. This has encouraged a collapse of confidence regarding the Euro and concerns over the ability of the union to react in crisis.

The BoJ held rates at 0.50% in an unanimous decision, as was widely expected. In addition, the accompanying statement cautioned that the domestic Japanese economy would stay lethargic as "the slowdown in overseas economies become more evident". The BoJ statement also mentioned that the pressure on global financial markets has increased, with new financial institutions failures and lack of success from rescue plans.

With a real lack of timely, significant economic data, it will be another day of keeping one eye on the equity markets and the other on the news wires.

Currency Tech

AUDUSD
R 3: 0.7944
R 2: 0.7818
R 1: 0.7743
CURRENT: 0.7321
S 1: 0.6990
S 2: 0.6776
S 3: 0.6715

EURJPY
R 3: 148.69
R 2: 146.85
R 1: 144.97
CURRENT: 139.98
S 1: 134.56
S 2: 133.53
S 3: 130.59

USDSGD
R 1: 1.4859
R 2: 1.4760
R 3: 1.4698
CURRENT: 1.4629
S 1: 1.4489
S 2: 1.4458
S 3: 1.4374

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

Published on  Tue, Oct 7 2008, 08:51 GMT