MARKET UPDATE: Optimism Dissipates for Global Recovery

 Optimism about strong recovery led by China – recall the fact that disappointment from the surprisingly weak US non-farm payrolls report in December was outweighed by strong Chinese trade data – has dissipated
 Instead of rejoicing at China’s robust GDP report last week, which revealed a 10.7% rise in the fourth quarter of 2009, worries over whether China would have to move more aggressively to tighten monetary policy dominated investor’s thoughts
 Further to this, US President Obama’s plan to limit the size and trading activities of financial institutions dealt another blow to financial stocks
 Meanwhile, rumblings about Greece continue to weigh on markets and Greek debt spreads continued to widen even as global bond markets rallied
 Obama’s announcement helped EUR/USD to avoid a break below 1.40, as there was a pullback in USD
 The AUD was also hit by news that Australia’s Henry Tax Review would look to tax miners in the country. As a result AUD/USD dropped below 0.90 though this level is likely to provide good buying levels for those wanted to take medium term AUD long positions
 The other G3 central bank to meet this week is the Bank of Japan but unless the Bank is seen to be serious about fighting deflation, USD/JPY may remain under downward pressure. USD/JPY, however, will find strong support around 88.84

These are the salient points kindly contributed by Mitul Kotecha, MD & Head of Global Currency Strategy at Calyon. To view the full discussion, please click here to visit the original post on his website The Econometer