Forex market conditions in the euro/US dollar currency pair are much improved on the week, and a positive change in trading conditions for the euro suggests that broader financial markets may likewise recover.
Forex market volatility has unexpectedly gained on the day, with increased uncertainty surrounding US Treasury plans to purchase distressed assets from increasingly fragile credit markets leading to similar uncertainty in the US dollar against major forex counterparts.
The Japanese yen saw an incredible week of volatility against the US dollar and other major forex counterparts, as dramatic shifts in the US Dow Jones Industrials Average and other major risky asset classes led to similar movements in the East Asian currency.
Dramatic declines in US T-Bill yields underline the level of risk aversion in global financial markets, as traders around the world move their funds into risk-free US government debt.
A continued intraday Dow pullback could prove bullish for the Japanese yen, which remains strongly correlated to the US Dow Jones and other key risky asset classes.
Some sources claim that a consortium of banks and private equity shops will acquire fast-falling Lehman Brothers shares over the weekend, and such an event would likely cause a sharp short-term rally in global stock markets -- sending the Japanese yen lower in its wake.
There was a clear and notable sign of relief as risk appetite jumped for equities, but in other assets, the price action was surprisingly reserved or somewhat counterintuitive.
Has the euro already reached the point of no return? This is the question traders will have to ask next week when liquidity returns to the currency market.
The upcoming BoE rate decision will be one the most difficult for policy makers as the evidence mounts that the country is fast approaching a recession, while inflation remains far beyond the MPC’s 3% threshold at 4.4%.
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