Market Update

September 7th 2010

The “not as bad as expected” NFP released on Friday sparked a rally in risky assets that had all the weekend newspapers forecasting better recovery prospects for the global economy UNTIL we opened the pages in the Tuesday morning paper and saw nothing but bad news coming out of Europe.  Just for starters, a WSJ article is casting doubt on the veracity of the recent European bank stress tests due to the under-reporting of risky sovereign debt held on their books.  Then German banks are rumored to have to raise $135 billion to comply with regulations in a Bloomberg article.  EUR/USD which looked perky trying to regain a foothold on 1.29 promptly got knocked down to the low 1.27 area.

In fact, the US dollar and the Japanese yen have again re-asserted their safe haven status in the past 12 hours, although the impact on the commodity currencies are less pronounced.  Gold which has been meandering near $1,245 is now making a new high at $1,260.  The 2 barometers of European financial market distress which are EUR/CHF and CHF/HUF are again tracking to their recent respective low and high of 1.2880 and 222.10.

EUR/USD will be more news dependent in the next couple of sessions as these negative bank articles are digested.  On the daily chart there is support on a rising trendline at 1.2670-80.