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Risk currencies corrected on Friday, as optimism over this week’s European leader’s summit has begun to lose momentum. EURUSD gained marginally after Friday’s sharp drop, climbing to 1.3451 from 1.3376. Asian regional indices were unconvincing in either direction as the Shanghai dropped -1.16% while Hang Seng climbed 0.73%. Commodities remain bid as tensions in Syria and Iran has helped crude and…

Risk appetite remained restrained following comments by German Chancellor Merkel that a joint euro bond was the “wrong solution”. Merkel then went on to say that the ECB “can choose its own means of currency stability”. ECB President Draghi defended the ECBs independence, but suggested that some degree of flexibility as he said ‘other elements’ could track if there is a ‘fiscal compact, binding…

Today FX markets are consolidating after yesterdays unexpected risk rally. The fireworks started with news that China central bank would cut the required reserve ratio for all banks by 50bp. Then in an effort to ease pressure in Europe the BoE, BoC, BoJ, ECB, SNB and Fed agreed to cut interest rates on USD liquidity swap lines by 0.50% (OIS 100bp to OIS 50bp). In addition, they extended these…

As Europe walks in, the optimism over the EU minister’s ability to negotiate a plan using the IMF to boost the EFSF is fading fast. To be honest, we were surprised how long the risk rally actually lasted. EURUSD dropped to 1.3259 from 1.3359 while USDJPY fell to 77.86 from 78.11. Asian regional indices were in the red with the Nikkei down -0.52% while Shanghai fell -3.27%. The extra selling in…

With the markets completely focused on events in Europe, headlines continued to define FX trends. Risk currencies rallied as there is hope that this week’s EU meeting will bring some solid announcements. A large part of the shift in risk sentiment was due to the speculation that the IMF is considering a financial aid package for Italy. EURUSD was able to rally off the 1.3286 low to 1.3398 while…

Headlines remain the primary driving force in FX markets. Rumors that the IMF was preparing a plan to lend Italy €600bn gave risk appetite a boast in Asian trading. However, Dow Jones has stated that unnamed IMF officials have denied the package. Asia regional indicates were strong across the board with the Hang Seng up 1.97% and the Nikkei up 1.56%. EURUSD was able to stage a mild rally off the…

Sentiment remains weak in Asia, as traders unwind risk positions ahead of the long weekend. Heavy selling in the short-end of the European yields curve as Europe opens. Dark clouds linger over Europe as the German Chancellor Merkel, French President Sarkozy and Italian Prime Minister Monti’s meeting ends with no crisis fighting initiatives announced. In addition, Merkel went on to…

The Euro took a massive hit in confidence yesterdays as news that Germany’s bund auction technically was a failure. If anyone needed further evidence that the crisis in European peripherals was spreading into the core, well this was clearly it. European yield spreads actually contracted, however for the wrong reasons, as Germany yields climbed well above the US bonds (following a trend of…

FX markets got a dose of exactly what it did not need today, bad economic news from China. China’s HSBC flash PMI dropped back below the critical 50 threshold, to 48 in November. While the correlation between recession in the manufacturing sector and a PMI read below 50 is mild, clearly the downside side risk to the Chinese economy has increased. Regional equity markets took a hit on China’s…

Risk sentiment is lower however, conviction remains light and FX trading fickle. We suspect that risk are skewed to the downside and continue to fade risk rallies. As was widely expected, the media outlets are reporting that the US “super committee” has failed to reach an agreement on $1.2tn in new spending cuts. The formal announcement is expected in the US session today. The news that the…