Asia Market Update

EUR/USD hits record high, tech stocks rally on IBM

Forex: EUR/USD rallied to a new record high at the start of the Asian session. A large number of stop-loss bids were tripped above 1.5000, propelling EUR/USD to 1.5040. EUR/USD remained well bid throughout the session, with negative gamma forcing some option books to buy the EUR/USD in a stop loss fashion. But EUR/USD lacked firing power above 1.50, with EUR/JPY selling dragging on EUR/USD. EUR/JPY failed to test the 100 day MA at 161.50, leading to some selling by short-term accounts. GBP/USD traded higher in the Asian morning, with a rapidly depreciating USD forcing shorts to cover positions. Some chartists expect GBP/USD to test key resistance at 1.9940-60 in coming sessions, a level that has not been broken in 2008. The AUD/USD remained well supported despite disappointing Q4 construction data, with futures almost fully pricing in the Reserve Bank of Australia raising interest rates by 25bps in March. USD/Asia generally traded lower on local stock market gains, with USD/HKD trading sharply lower after breaking below support at 7.7950 (traders cite IPO related demand and bullishness towards Hong Kong equities). Traders said that the Taiwan central bank bought USD in an attempt to slow the TWD''s advance.

Higher interest rates have tempered residential construction growth in Australia: (AU Q4 CONSTRUCTION WORK DONE: -1.0% V 2.0% expected, prior revised to 2.2% from 2.8%) Lehman Brothers chief economist Stephen Roberts said the soft numbers for new residential and non-residential construction could be a sign that interest rates will peak after they are raised in March as expected.

New Zealand business confidence deteriorates since mid December: (NZ FEB NBNZ BUSINESS CONFIDENCE: -43.9 V -24.9 prior, lowest reading since May 2007) This was an important release, because it was the first comprehensive business survey published since mid December. Quite a lot has happened since then, and the data clearly shows that New Zealand business managers are concerned about the economic outlook.

The Democratic debate and NAFTA: Hillary Clinton and Barack Obama on Tuesday night threatened the United States could opt out of the North American Free Trade Agreement if they are elected president, warning Canada and Mexico the deal is dead unless America wins concessions to strengthen labor and environmental standards.

Equities: At 23:11 ET Japan''s Nikkei is +1.78% (trading above the psychologically important 14,000 level), the S&P/ASX200 is +1.66% (above 5,700 level), South Korea''s KOSPI is +0.97%, and the Shanghai Composite Index is +2.34%. IBM''s trading update lifted Asian technology shares, with automakers and financials leading the charge in Tokyo. Energy and resource stocks traded sharply higher in Sydney, with Allco Financial trading higher by +25% after announcing accounting restatements. In Seoul, investors pushed Hyundai Heavy higher after announcing a contract win, with Hynix Semiconductor also seeing active buying interest. China equities rallied as liquidity concerns eased (as reflected by declines in China''s 7-day repo rate to 2.8748% vs. 4.1900% during the prior session).

Commodities: At the time of writing, Nymex crude oil trades at $101.06/bbl, gaining +0.19% between 18:00 ET and 23:22 ET. Spot gold continues to benefit from USD weakness and inflation concerns, gaining +0.83% to trade at $956.50/oz. Spot gold rocketed to a new record high at the start of the Asian session.

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