Brave New World

Market Roundup 26/02/2009

The foreign exchange market price action proved lack lustre today, despite awful US data, continued digestion of the new US budget and focus in the UK about the future of the banking sector. The main story to catch the eyes of market participants was the continued descent of the JPY and the end of its inverse correlation to equity markets and, more generally, risk sentiment. As the market has absorbed the truly horrific numbers coming from Japan. It is now very likely to be the first developed economy to enter depression- measured as a fall of 10% of GDP. As mentioned in the earlier post today an important driver for the weakness in the JPY has been Japanese domestic demand for foreign bonds- lending a net $6 trillion in the 4 weeks to February 20th. USDJPY reached a high of 98.70. From a technical viewpoint USDJPY may pullback before retesting the psychologically important 100.00 level, given that the Daily RSI is now above 75 for the fourth day in row- a strong signal that the pair is overbought. 

Both EURUSD and GBPUSD continued to trade in relatively narrow ranges. EUR remained within a 90 pip range from 1330 to 2030GMT, from 1.2720 to 1.2810. The same goes for sterling, with Cable trading between 1.4260 1.4360. This is despite news of the UK government taking further, as yet unofficial, steps to nationalize troubled UK banks. US Durable Orders fell a larger than expected 5.2% in January, meaning that since January 2008 leading to decline by 26.2%. Non-defence capital goods orders excluding aircraft – a gauge of business investment – tumbled 5.4% during the month and 20.2% from a year ago. All told, the declines suggest that the US economy is suffering at the hands of waning demand on both the consumer and business level.