The weekend S&P downgrade of the US saw FX markets open with the USD weaker across the board from Friday’s closing levels. EURUSD opened around 80pts higher, with EURCHF and USDCHF off almost 2 figures and USDJPY off around 130pts. The JPY and CHF pairs opened near their lows and never really looked in danger of heading lower despite the sell off in risk later in the morning.
The initial dollar weakness in thin trading was aided by ECB comments following a conference call expressing that it will “actively implement” the bond purchase program. This suggestion of possibly buying Italian and Spanish debt to soothe market stresses gave EURUSD a lift from 1.4400 to 1.4432, but this ran out of steam as stock futures opened lower (S&P -2.5%) and dragging risk pairs lower. EURUSD fell in light trading to 1.4290 to fill the gap from the open, led by AUD which had traded heavily all morning.
USDJPY experienced a brief 50pt flurry higher to 78.48, but never seemed to gather any steam in the dollar recovery, especially with Noda refusing to comment on whether the currency intervention had recieved “understanding” from the other G7 partners.
AUDUSD kept finding support near previous lows of 1.0375/80, and a small easing in stocks saw the pair squeeze back towards 1.0450 with what looked like waves of EURUSD buying going through the market heading back to 1.4370/80. A higher USDCNY fix at 6.4305 helped the dollar and stocks could not hold onto the small bounce. As Asian stock markets opened they were sold heavily, with the Kopsi dropping 6.4% through the morning and keeping a lift in USD/Asian pairs. All this weighed on G10 with AUD and NZD bearing the brunt, and AUD eventually cracked through 1.0380 to drop rapidly to 1.0313.
We head into London with “risk” fractionally off its worst levels but the overall sentiment bearish. EURUSD seems comfortable above 1.43 for now as the markets waits to see if the ECB will follow through with its hints of further bond purchases.
HSBC Global Research