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Asian Session − Asian Equities Slide As Confidence Softens

Wed, Oct 8 2008, 08:57 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Market Brief

The Usd was range bound in irregular trading in Asian Session, as regional stock markets have come under significant pressure. The EurUsd, in spiky trading, traded from 1.3660 down to 1.3545, while the UsdJpy broke briefly below the psychological 100.00 barrier before trading up slightly to 100.24. Risk aversion was the central theme as equity markets across Asia fell sharply as economic worries intensify. Yesterday, Wall Street’s close was dismal, with the S&P falling -5.73% and losses have just been amplified in Asia. The Nikkei has dropped -9.38% and the Hang Seng -5.55% (HKMA stepped in with an emergency 100bp base rate cut ). Commodities prices were mixed, responding accordingly to perceptions of safe havens vs. risky trades, with crude dropping to $88.06bbl and gold $895.60oz, up 1.0%.

Yesterday, the Fed announced that it would trade in commercial paper market & provide unsterilised liquidity to firms being hurt by the lack of liquidity. This should help companies with short term funding obligations, such as payrolls and inventories, meet their requirements. This is the first time the Fed has participated directly in the commercial paper markets. Elsewere, Bernanke made it clear that the next move in monetary policy will be down, stating “Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased. At the same time, the outlook for inflation has improved somewhat, though it remains uncertain. In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate”. We read this and other indicators as a 50bp cut at the next meeting. However, even with these measures confidence is still very shaky and equity markets collapsed.

In the UK, Treasury officials are expected to announce a capital injection of around $200bn into the nation’s important banks. The plan will have the government taking stakes in the banks to boost confidence. In addition, the BoE will be meeting tomorrow and markets are pricing in a deep cut. After Monday’s RBA surprise 100bp, we could see MPC members take similar action, since inflation concerns are now secondary.

With a real lack of timely, significant economic data, it will be another day of keeping one eye on the equity market and the other on the news wires. We expect the currency markets will move lock-and-step with macro development with the Usd & Jpy gaining, as confidence erodes and risk aversion increases

Currency Tech

AUDUSD
R 3: 0.7738
R 2: 0.7355
R 1: 0.7157
CURRENT: 0.6854
S 1: 0.6754
S 2: 0.6715
S 3: 0.6683

EURJPY
R 3: 148.69
R 2: 146.85
R 1: 144.97
CURRENT: 136.81
S 1: 134.56
S 2: 133.53
S 3: 130.50

USDSGD
R 3: 1.4859
R 2: 1.4760
R 1: 1.4726
CURRENT: 1.4692
S 1: 1.4489
S 2: 1.4458
S 3: 1.4374

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

Published on  Wed, Oct 8 2008, 09:02 GMT