How Low Can You Go ……

Currencies Direct October 24th 2008 - 3 minute read

How Low Can You Go ……

Every few minutes this morning we are hitting new lows in Cable, Euro/$ and all crosses Yen related as well as seeing Stock Markets falling off. Last evening we saw the Dow claw its way back from a 5-year low on some better than expected US Corporate results. The recovery however was short lived and Japan once again sold stocks all round following the Sony profit warning – the NIKKEI fell to a 5 ½-year low after losing 9.6% on the day and the continued strengthening of the Yen on the world foreign exchange markets. This trend in equities was mirrored in Hong Kong and Singapore with European markets opening in the same vein. Spurious rumours of intervention kept traders on their toes but nothing tangible emerged so the rout continued. Concern within the Japanese Ministry of Finance must be almost at fever pitch and that they are within a hairs breadth of acting to suppress the Yen’s inexorable rise. Friday has historically been a favourite for the Japanese to act but they need the Europeans and Fed to be with them to have any chance of being taken seriously – we will see. These markets can certainly be viewed as disorderly though, which is one of the stated criteris required to exist prior to any Central Bank action. It is worth noting that the Danish Central Bank raised their key lending rate this morning by 50bp to 5.50% as a direct result of intervention to support the Krone. Are the Danes market leaders ?

Sterling itself looks decidedly dodgy with the headline cable rate falling to a new 5-year low but it must be remembered that although Sterling has softened on a Trade Weighted basis, down to 86.7 from yesterday’s 87.7 close, the move is very much Dollar and Yen strengthening rather than a focused kicking for Sterling. Having said that, the article in the Telegraph this morning with predictions of a swift move to 1.5000 and comments from MPC member Andrew Sentence have added to the black cloud hanging over the market. Sentence has now become very dovish indeed saying that a severe recession is more likely and that the MPC needs to factor negative forces affecting business into their future rate decisions. All this reaffirms the view that UK rates are going down, and in lumps.

Today’s release of GDP has reaffirmed the sell off and capitulated sterling to new lows against the dollar . EU data has also come and gone already with the individual countries PMI numbers plus the composite EU figure all coming in worse than expected. Later on, the OPEC members get down to the nitty gritty of deciding by how much they cut their combined production and the breakdown for individual member states. There have been calls over the last couple of days for a reduction of 2 – 2 ½ million bpd whereas in practice the cut will probably be agreed at nearer 1 million. Despite this, oil continues to fall on over-supply. Gold has also slipped again, back towards $700.

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.

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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Currencies Direct

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