Risk came back to fore modestly in the London session as news of yet another bailout of a major US bank sent positive shock waves through global equity marts. Europe led the way higher and had added more than 4% last we looked. The US is also up near 3% on the heels of a stellar near 7% rally on Friday. The US government has pledged more than $300 billion in toxic mortgage asset relief coupled with a direct $20 billion cash infusion into the juggernaut bank. This is on the back of the Geithner pick for Treasury Secretary which fueled the stock rally into the weekend.
The trade up in risk followed through in FX land. EUR/USD pushed well above the 1.2700 area after opening London trading near 1.2600 initially. Now the 1.2830/40 zone looks vital in terms of dictating the direction from here. Expect gains to accelerate markedly above there.
EUR/JPY charged higher on the follow. The pair is up more than 300 pips from the London open and sits near the 123.00 zone. This looks like the trigger for a push higher here as well.
Economic data has been cast aside for now as bailouts matter more. The German IFO looked terrible overnight but this meant nothing for the EUR trade. Meanwhile, US existing home sales eased to a run-rate below 5.0 million units -- worse than expected -- but equity marts ignored it. The risk remains that we get an unwinding in the equity markets as the US Thanksgiving Day holiday approaches. If the market takes a step back and realizes that the most recent bailout and the Treasury Secretary appointment mean nothing for grim economic realities, risk aversion will be quickly back in vogue.
