Equity Markets Fall, Flight to Quality in the Usd

The Usd seems to be the currency of choice for risk averse investors, gaining across the majors. The EurUsd fell approximately 100 pips to the low range of 1.35, while the UsdJpy also retraced back to the high 100 price area. The GbpUsd slipped roughly 50 pips to the mid 1.73 area based following the general trend trading in the market place. Equity markets retracted in the US and Europe with the Dow down over 500pts, falling back below the 9000 level. Bond yields collapsed with the 2yr treasury tighter by 22bps at 1.59% and the 10yr in by 10bps at 3.98%. Commodities declined with the exception of gold which rose nearly 1% to 843, investors are clearly migrating to more secure assets in today’s session.

There was light data out of the Eurozone today, the Euro fell against the dollar which is consistent with the risk aversion trade we’ve seen recently. As the equity markets selloff, both the Euro and Cable follow suit, as well as oil which seems to be the new risk aversion. In the UK, employment data worsened with the ILO figures rising by 0.2% to an unemployment rate of 5.7%. Economists expect the unemployment to rise in the near-term with weaker corporate earnings and overall slowing growth. As economic fundamentals come back into play we are likely to see further declines throughout the G10.

The dollar displays a higher degree of correlation to price behavior in treasuries and equities, this trend is likely to continue until the market move towards a stage of stabilization. We hold a bullish stance on the Usd versus the majors, and a strong likelihood that central banks will be prompted to cut rates further closing the gap in yield differentials.

AC Markets
http://www.ac-markets.com

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.