The greenback is finally finding some bids on Tuesday following the latest sharp broad based sell-off with all major currencies giving back gains on profit taking and ongoing concerns over the stability of the global financial system. Sterling has been the outperformer on the day, following the higher UK inflation data along with comments from BoE King who said that he saw no reason why the currency could go any lower. However, Cable has also pulled back from its daily highs and trades lower in the New York session. Also seen weighing on Sterling has been a local article entitled “UK can’t afford any more stimulus plans.” The Bernanke/Geithner testimony on AIG continues into the London fix and the basic message has been that the government simply could not allow AIG to fail as it would have posed “unacceptable risks” to the global financial system. The Q&A session is just underway and is expected to inspire some tough questions which could pose additional risks to investor sentiment. A flurry of dovish comments out from ECB and Eurozone officials continues with the latest remarks coming from ECB Papademos who says that the ECB could consider a quantitative easing policy if necessary. On the data front, the morning releases were on the whole better than expected with house prices and the Richmond Fed both above consensus. Looking ahead, the markets will continue to focus on the testimony on Capitol Hill along with the anticipated Q&A. US equities are lower on the day, with all major indices down over 1%.
ANALYSIS OF SELECTED RATES
Nzd/Jpy – Daily studies now very overbought and needing to pullback following the latest strong rally. The overbought readings also coincide with the today’s test and minor breach of the previous 2009 highs from early January to 56.35 thus far. The market however, has since retreated back towards daily opening levels and a close at or near 55.45 would be viewed as bearish with the formation of a gravestone doji that likely opens a more significant pullback in the days ahead.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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