Sour mood in Asia sees JPY bulling stronger across the board. USD moves more restrained ahead of huge FOMC event risk.
Yesterday saw a very ugly finish on Wall Street that spilled over into Asian equities as well overnight, as risk aversion came back with a bang. The Yen responded strongly, with most JPY crosses sharply lower on the day. AUDJPY has traded as much as 4% lower from Friday's close as perhaps the highest beta currency pair of the majors. AUDUSD was also sharply lower and tested through key support levels around 0.7850. The broader JPY picture was unambiguous, but the USD picture remains relatively restrained, as it appears market participants aren't quite ready to commit ahead of tomorrow's momentous FOMC meeting.
EURJPY touched its lowest levels in nearly a month as European interest rates fell all along the curve despite Trichet's fairly hawkish statements yesterday about the ECB's actions in the past. He said that the ECB policy action has been "very bold", that the policy environment is difficult, and that the bank is looking for economic growth to resume in 2010.
CAD swooned through 1.1500 in USDCAD and NOK was perhaps also a casualty of the very steep oil sell-off yesterday. The NOK move runs counter to the developments earlier this year, when NOK was finding strength on safe haven buying. But at these levels well above 9 in EURNOK, NOK is beginning to look like an extremely attractive value for a longer term bet.
It appears that markets are sliding quickly into risk aversion again, as equities are looking ominous and as the markets mull the Fed's decision and monetary policy statement tomorrow. The great question on everyone's lips at the moment is the potential trajectory of the US dollar once the meeting is behind us. The greenback is in no-man's land right now, but can hardly be expected to remain that way for much longer.
Watch out for the preliminary PMI's for the EuroZone and member countries today for a reading on the momentum in the European economy and to what degree it is showing any momentum shift that would give the Green Shoots crowd cheer. US May existing home sales are also up, and these could surprise to the upside since US govt. yields bottomed in May and early June, which must also have had an effect on housing activity, with so many incentives to buy homes in place and the very low mortgage rates that survived until just a couple of weeks ago.