Concerns about a potential swine flu pandemic continued to weigh on risk assets in the NY session. US equities were punished about -1% on the back of the flight to safety and the US dollar was a major beneficiary of the market fear, with the DXY index up +1.2% on the day. This rally in the buck left even gold about -$7 lower near the bottom of the day's 905/919 range.

Euro was punished on both the pandemic scare and some dovish ECB comments. The big blow came when the ECB's Nowotny said that the central bank stands ready to use ''unconventional measures''. This is another way of saying that the bank is prepared to implement some form of QE (quantitative easing) in the very near future. If we take how the market reacted when the Fed announced it would engage in QE, punishing the USD more than -4%, the prognosis for EUR is bleak. ECB President Trichet confirmed that these measures would be discussed at the May meeting.

EUR/USD felt the pressure and plunged more than -100 pips into the 1.3030/40 area. It now looks like the pair is poised to close below the Ichimoku cloud which ranges from a top at 1.3138 to a bottom at 1.3104 currently. This should prove bearish for the pair in the days ahead. That said, the pendulum of risk is likely to continue to swing as the swine flu story develops further. Waning in the risk of a pandemic should elicit at least a short term bounce in ''riskier'' assets, which should leave EUR better bid.

The Asia session will undoubtedly continue to trade on developments in the swine flu news and we also have Japanese retail trade numbers due up. The market is looking for the annual rate of sales to improve to a still bleak -4.7% in March from -5.7% prior. We would expect yen to weaken on a much worse than anticipated result here, reversing some of the losses in the JPY crosses. That said, any knee-jerk reaction will likely be short-lived if the overall flight to safety continues to play out.

Upcoming Economic Data Releases (Asia Session) prior expected

  • 4/27 23:50 GMT JN Large Retailers' Sales MAR -8.20% -7.80%
  • 4/27 23:50 GMT JN Retail Trade YoY MAR -5.80% -4.90%
  • 4/27 23:50 GMT JN Retail Trade MoM SA MAR -0.30% -0.40%
  • 4/28  JN BOJ to Hold Regular Policy Board Meeting
  • 4/28 5:00 GMT JN Small Business Confidence APR 30.4 31
  • 4/28 6:00 GMT JN BOJ Releases Economic Outlook Report