Dollar Pops as Sentiment Sours, Key Levels Breached

USD the top performer, gaining more than a cent against AUD, EUR and GBP on Monday as risk aversion gripped markets. Key levels were breached or tested in several markets on a dimmed outlook for global growth. The upcoming Asia-Pacific session features data on New Zealand inflation expectations.

EUR/USD tested below 1.40 several occasions but rebounded to close near 1.4050. EUR/CHF fell to an all-time low. The latest slump came after Fitch lowered its outlook on Belgium to negative from stable. They said a downgrade from the AA+ rating is likely if official deficit targets are missed.

For more on the technical picture for EUR/USD and how Spain's soaring spreads technically stand out, see todays Premium Piece: http://www.ashraflaidi.com/products/sub01/access/?a=431

Fears about slowing global growth pulled the S&P 500 down 1.2% and below the 55-day moving average. It was the largest one-day decline in two months and is reminiscent of the past two quarters when stocks sold off following earnings season. US 10-year yields fell to the 200-day moving average at 3.08% but rebounded toward 3.13%. Ten-year yields in Greece and Ireland hit euro-era records.

Economic news was relatively light, especially in US trading. News developments are covered in previous IMTs but we would argue that the price action has more to do with the build-up in negative sentiment rather than anything new.

Despite the negative sentiment, the Canadian dollar was an outperformer and gained a full cent against its commodity cousins in Australia and New Zealand. The CAD resilience is difficult to explain given the $2.60 fall in oil and 3.5% fall in growth-sensitive copper. Canadian banks were closed for a national holiday and we may see some payback when they re-open on Tuesday.

**** AUDCAD trade has just been added to Monday's Premium piece ****

See last paragraph of today's piece http://www.ashraflaidi.com/products/sub01/access/?a=431

Asia-Pacific Preview

The regional calendar is somewhat bare so market participants should get a chance to digest some of the large price moves today. One notable release is the 0300 GMT report on New Zealand inflation expectations. Previous survey respondents called for a 2.6% q/q rise.

In Japan, cabinet ministers are holing a meeting and holding press conferences. We will look for hints at new economic initiatives to stem a slowdown that has been harsher than officials were expecting a month ago. Especially look for comments from Noda, Yosano and Edano.

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