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The Pendulum swings again...

The Pendulum swings again...

The Pendulum swings again...

Another volatile day yesterday saw big moves in the forex markets and vastly improved risk appetite. Firstly we saw the Swiss National Bank (SNB) cut interest rates by 25 basis points- nothing surprising there; however alongside this policy easing the SNB stated plans to introduce Quantitative Easing due to deteriorating economic conditions and a risk of deflation over the next three years. The SNB are concerned about the strengthening of the Swiss Franc and decided to purchase foreign currency in the markets to prevent any further appreciation of the Swiss Franc. The Central Bank was estimated to have purchased billions of EUR and USD weakening the Swiss Franc significantly across the board. This move is very significant as it is the first time in over 10 years that a major central bank has intervened in the fx markets and potentially opens the door for other central banks to follow suit. With major central banks cutting interest rates towards zero and the slowdown ongoing, a weaker currency is a quick win to boost economic growth. Japan last intervened in 2004 and the strength of the Yen has severley affected the competitiveness of Japanese exports which have fallen sharply. The yen is considered overvalued making huge gains against the dollar and the pound in the last year- will the Bank Of Japan try to forceably weaken the Yen in the near future?Asian markets soared on Friday and the Dow (DJIA) has risen by a total of 600+ points over the last 3 days which is the best weekly performance we have seen for some time- admittedly from very low levels. The positive sentiment was helped by rumours of government plans by Japan and China to assist their economies with large fiscal stimulus packages. The equity rallies were mirrored in the fx markets as the pound gained back to 1.40 on the USD and the EUR moved over 1.29 against the USD- again the classic theme of risk appetite leading to a weaker US dollar.Elsewehere the bounce in Asian stocks helped the Australian and New Zealand Dollar to rally as foresight suggests the confidence in the markets could lead back to higher yielding assets- Gold also jumped on yesterday’s momentum.Today we could see a breach of 1.30 on EUR/USD and the pound will look to hold its head above the 1.40 level and target 1.10 against the euro- so back to levels before the sharp decline on Monday.The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

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