China Raises Reserve Ratio & Scares Risk Takers

Daily Forex Fundamentals | Written by AC-Markets | Jan 26 10 10:26 GMT |

Market Brief USD rallied back in the Asian session, as news that China was again raising its reserve requirements on select banks and S&Ps lowering of Japans outlook spooked investors. Yesterday, Wall Street was able to close on a postive note, but news from China and Japan clouded the sentiment.The Nikkei closed down -1.78%, while Shanghai was down -2.42%. After an encouraging start, the EURUSD traded higher to 1.4180 and pushing JPY cross higher as well, but around midday sentiment shifted and risk correlated trades tumbled. With Australia on holiday, Tokyo were the main players in AUD, selling the pair down to 0.8960 as high beta trades came under the knife. Outside Asia, political issues in the US continued to also weigh on risk taking, particularly Bernanke's potential confirmation of a second term. While the White House sounds confident that the Senate will confirm the current chairman, and positive comment have helped ease concerns, Obama public mandate is currently being questioned, a rogue senators effecting the vote should be priced in. In Japan, the BoJ voted unanimously to keep the policy rate unchanged at 0.1%. The meeting went widely as expected with no new policies or adjustments to existing schemes/operations being announced. Core CPI forecast was revised higher for fiscal 2010 to -0.5% y/y from -0.8% y/y previously, which was followed up by FM Kan stating that Japan could be clearly out of a deflationary environment in 2-3 years with the BoJ help. While he didn't elaborate on what monetary policy tools the BoJ has to achieve this feat, they could include increasing the central banks monthly purchases of JGB. Later in the day the S&P inexpertly lowered Japan's sovereign rating outlook from 'stable' to 'negative'. Japan's rating remains at AA, fiscal outlook is unlikely to improve as the new government spending plans restrict any positive adjustment to surge debt and we would expect other rating agencies to also lower in the near term. UK GDP just sqeeked out recession with today q/q print of 0.1% vs. 0.4% exp , -0.2% prior read (y/y -3.2% vs. -3.0% exp). Perhaps Chancellor Darling comments on today's GDP data that he remains 'cautious' was more than just easing the markets optimism (however, historically UK GDP are revised upwards). The economic data was very close to the bone and can easily be revised down. The disappointing report causedthe GBPUSD to collapse to 1.6150 from 1.6230. ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.