20131009

Good morning,

European and US stock markets headed lower and the US dollar gained overall on back of increased risk aversion as a result of the mess in the US congress - Obamacare, Debt Ceiling, No-Tapering and so forth. Tuesday's 4-week Bill auction resulted in the highest short term rates since 2008, indicating that the market is demanding a higher premium for short term US debt. EURO STOXX 50 closed down 0.7% on Tuesday with FTSE100 in the UK leading the losses down 1.1%, and in the US indexes fell more than 1% on average. S&P (down 1.2%) closed below the trend support from November 2012 and 100-day SMA for the first time since December 2012 and opening up for a test of the 1625-area. FX markets saw the same pattern with a flight to liquidity meaning an increase of the US Dollar, especially against its close geographical partners, the CAD, MXN and BRL. The usual suspects for risky markets - the Swissie and Yen - did not experience any major reactions although recent flow has favored long positions in both.

Overnight, global growth concerns increased as the IMF cut its global outlook, which triggered a drop in non-Japan shares. USD-bids kept the JPY on the offer, which took local shares higher. Cross selling of the JPY has also taken EUR/JPY higher, bouncing back from the 50-day SMA. The Aussie bounced back from the 100-day SMA last week, but is showing signs of uncertainty as seen by the long shadows and small bodies on the candles.

Today, in the European session, markets will be focusing on German Industrial Production and UK Manufacturing Figures. This could create some stir in EUR/GBP, where the market is positioned for some supportive EUR data.

The US session will be key today, with all eyes on the FOMC minutes, which should give some additional insight on why the Fed decided not to taper in September. Hence, volatility could be subdued ahead of the meeting with confirmation to follow with shares and the US Dollar being the main drivers.