Brave New World

Market Commentary 11/03/2009

EURUSD Upside potential remains while above 1.2730/40, below may see back down to 1.2670/80 initially, key trend line support at 1.2630

GBPUSD Based on down channel base at 1.3660/70, corrective bias higher while above 21 hour SMA at 1.3750, below may see 1.3670/80

Equity markets managed to retain the gains made from yesterday’s massive rally.  European indices closed broadly flat. The change in risk appetite, followed an email from Citigroup yesterday saying that the bank had been profitable in January and February. The USD, which has benefitted from the flight to safety as markets have tumbled, experienced a modest weakening throughout most of Wednesday. EURUSD gained about 100pips in European trading, despite yet more disasterous news from Europe. German factory orders slipped a sharp -8.0% in January on the back of a -7.6% decline the prior month. This took the annual rate to -37.9% and the worst since records began in 1992. Nevertheless, the euro has managed to shrug this off as the correlation of higher stocks higher  looks to be back in play at least for now. Sterling has continued to keep it’s position against the USD. The currency has benefitted from a re-injection of some market faith in the banking system and a increasingly hopeful views on the effect of quantitative easing. The fact that the Bank of England has continued to target inflation whilst injecting fresh money into the system has reassured some in the market. Still, it is early days and it is unlikely that any last confidence will be demonstrated in the equity markets, or in the FX markets (resulting in a rally in GBP, AUD and CAD) ahead of the slow motion car crash also known as the G20 meeting, in three  weeks.