EURUSD to make new lows

Today’s UK Telegraph highlights that Russia’s financial crisis is escalating as foreigners pull funds from the country and the debt markets start to price in the serious risk of sovereign default with spreads on credit default swaps reaching 1,123, well above those seen in Iceland’s case before it sought a rescue from the IMF. The comments come hot on the heels of news the IMF was in talks with various emerging countries, including Hungary, Iceland, Pakistan and Ukraine.

BOJ Gov Shirakawa commented that he expected the Japanese economy to remain sluggish in the near-term due to the global slowdown. However, lower commodity prices should have a dragging effect on inflation. Another trigger that prompted further JPY buying.

Market chatter in Japan is suggesting that the BOJ may step in to try and slow the JPY’s surge, though trying to pick a suitable level where they might stand a chance against the runaway train is proving fruitless. As a respected trader in Tokyo pointed out, the BOJ is unlikely to get support from other central banks as USDJPY buying would drain USD from the market just when global central banks are trying to increase USD liquidity

Black Friday in the stock markets around the region, which were all posting new lows from the previous week, suggesting new downside scope for another 10%-20% in the coming weeks. The Nikkei was down over 7% after lunch, dragged down by profit-warnings from Sony and other exporters under pressure. Another sharp rally in the JPY exacerbated their difficulties. The Nikkei is now heading for a weekly close below 8,000, new 5-1/2 year lows, and more expected earnings downgrades/results being announced in Q4 and a slower world economy all round should continue to pressure stock markets lower. Other bourses in the region heavily under water, the Hang Seng falling 5%, STI 3.77% and ASX200 3.16%.

FX-land was dire during the Asian session, JPY crosses shot to pieces and the USD had another bump higher. Liquidity was almost non-existent as USDJPY crashed, reports of barrier defenses at 95.00 and 94.50 while EURJPY slumped a hefty 2.5%.

CHART – EURUSD

EURUSD rebound proved short-lived. Momentum building to take out 1.2725-30 previous support for explosive fall down to 1.2600 level.