The NY session was highlighted by another move higher in the buck as ECB President Trichet offered up a relatively dovish assessment of the Euro-zone economy.  The ECB kept rates unchanged at 4.25% but what started as a non-event was quickly reversed as Trichet took the microphone.  He noted the increased downside risks to growth while also acknowledging somewhat that inflation pressures have receded.  The real bombshell came in the Q&A session when Trichet was asked about rate cuts.  The mere mention that rate cuts were discussed is all traders needed to clobber EUR/USD.

The futures market went on to fully price in a 25 bps cut from the ECB by the end of the year and many investment houses hopped on the rate cut forecast bandwagon to boot.  EUR/USD ran to a session low near 1.3745/50 before reversing a touch and closing the session down about -80 pips near the 1.3820 mark.  EUR/USD hit a 13-month low point and has shed a whopping -800 pips since last Friday's close.  With US nonfarm payrolls and the House vote on the bailout package due up tomorrow (vote possible tonight) we would not be surprised to see the buck take a breather here and give up some gains.

US stocks were pummeled about -4% in broad terms and the Dow is now just 120 points shy of Monday's horrific close.  The move in stocks nudged JPY crosses lower with USD/JPY ticking down a modest -10 pips to 105.30/35 while EUR/JPY was crushed -95 pips into the 1.4555/60 zone.  The House vote on the bailout package should provide volatility in global stock markets for the balance of the week.  Passage of the bill should see stocks soar (at least initially) and we would expect JPY crosses to follow higher from here as it becomes more and more clear that they have enough ''yea'' votes in hand.  Stay tuned!


Upcoming Economic Data Releases (Asia Session):

  • 10/2/2008 23:30 GMT AU AiG Performance of Service Index SEP 39.3 - -
  • 10/3/2008 0:00 GMT US St. Louis Fed's Bullard To Speak at Bloomington, Indiana 
  • 10/3/2008 0:30 GMT AU TD Securities Inflation MoM% SEP 0.10% - -
  • 10/3/2008 0:30 GMT AU TD Securities Inflation YoY% SEP 4.20% - -
  • 10/3/2008 1:45 GMT US Fed's Hoenig Speaks in Albuquerque on Economy, Policy