Global Stocks plunge on U.S. recession fears. High yielder’s worst affected.

Currency Trading Summary

U.S. Dollar Trading (USD) saw markets closed in the U.S. for Martin Luther King Day. Nonetheless the volatility was heightened as fears over the prospect of a US slowdown spilled over into the global economy sparking a rout on the world’s stock markets. As a result, uncertainty ensured that a number of majors were sold against the USD. Share markets in the US were closed although the Futures markets had priced in a decline of -522 points on the Dow Jones (-4.5%) once markets resume on Tuesday. Crude oil traded at its lowest level in 6 weeks down by US$1.91 a barrel to US$88.66 on fears that softer global economic conditions will ease demand. Looking ahead, Markets resume activity in the U.S. with Richmond Fed Manufacturing survey the only economic indicator. More importantly emphasis will surround the US equity markets for further indication of the financial squeeze.   

The Euro (EUR) was sold across the board, against the USD and the JPY. With markets paying plenty of attention to price of stocks, Major European Bourses followed suit from the Asian session with the German DAX plunging 7.2%, whilst the French CAC also lost 6.8%. As a result the European stock markets suffered there largest loss since September 11 attacks on New York in 2001. Market analysts are of the view that there is little chance the European economy will decouple itself from U.S. adding to an already existing slowdown. Hence Economists are of the view that the next move from the ECB will be that of a loosening bias. The Euro declined for the 5th consecutive day (largest losing streak since June 2007) trading at its lowest level since Dec 26th. Overall the EURUSD traded with a low of 1.4422 and a high of 1.4608 before closing the day at 1.4441.  

The Japanese Yen (JPY) was the one currency that rallied against the USD boosted by risk aversion and plunging global stocks. The Carry trade continues to lose its appeal amongst investors, and is viewed to continue in the coming weeks. Head of European hedge fund sales at Mizuho Capital Markets in London, Neil Jones, predicts that a weekly close below 154 yen will “trigger a wave of sell signals” for the Euro. He added the yen could rise to 100 per dollar by the end of March. Overall the USDJPY traded with a low of 1.4422 and a high of 1.4608 before closing the day at 1.4441. BoJ rate announcement is expected to the members vote for rates being kept on hold during Tuesday Asian session. 

The Sterling (GBP) fell by 0.4% during the overnight session trading below its Ten month low of 1.9470. Coupled with spiraling stock prices, UK housing market figures revealed plunging mortgage lending in December and falling house prices in January. Such data has added to pressure on the BoE to cut interest rates in their next meeting. In other news the FTSE also followed suit falling by 5.5%. Overall the GBPUSD traded with a low of 1.9490 and a high of 1.9583 before closing the day at 1.9435 in the New York session. BoE Governor King is scheduled to speak on Tuesday, sure to create plenty of interest in financial markets.

The Australian Dollar (AUD) was volatile on the back of a number of factors. During the Asian session, PPI data was released worse than forecasted and previous figures for the fourth quarter of 2008 with traders prompted to trim bets of a rate hike in February, as such data is often considered a preview to Wednesdays much anticipated CPI data. Furthermore a sharp slide in equity prices overnight caused a rapid sell off in high yielding currencies on the back of waning risk appetite. The AUDJPY traded at it lowest level since August 2007. Overall the AUDUSD traded with a low of 0.8591 and a high of 0.8819 before closing the day at 0.8605. The Aussie Dollar opened up on Tuesday morning at it lowest level in four weeks of 0.8619.

Gold (XAU) fell to a two-week low in London as the dollar strengthened and investors sold commodities to cover losses in equities. Added to lower energy prices ZAU traded with a low of 859.10 and a high of 882.50 before closing the day down by US$19.20 an ounce to US$862.50
 

TECHNICAL COMMENTARY

Euro – 1.4415
Initial support at 1.4412 (Jan 22 low) followed by 1.4392 (Dec 26 low). Initial resistance is now located at 1.4622 (Jan 21 high) followed by 1.4716 (Jan 17 high).
 
Yen – 105.85
Initial support is located at 105.00 (Psychological round number) followed by 104.91 (May 11, 2005 low). Initial resistance is now at 106.98 (Jan 21 high) followed by 107.59 (Jan 18 high)
 
Pound – 1.9400
Initial support at 1.9358 (Mar 16 low) followed by 1.9309 (Mar 15 low). Initial resistance is now at 1.9585 (Jan 21 high) followed by 1.9727 (Jan 18 high)
 
Australian Dollar – 0.8785
Initial support a 0.8553 (Dec 18, 2007 low) followed by 0.8488 (Sep 19, 2007 low). Initial resistance is now at 0.8821 (Jan 21 high) followed by 0.8881 (Jan 17 high)
 
Gold – 856.40
Initial support at 853.60 (Jan 3 low) followed by 845.90 (61.8% retracement of 775.50 to 914.30 advance). Initial resistance is now at 823.20 (Jan 21 high) followed by 890.30