MARKET COMMENTARY: Selling Risk Trades On Rallies

 A poor outturn for the US service sector (the ISM non-manufacturing index failed to match expectations, coming in at 50.5 in January versus consensus of 51.0) has weighed on markets. Reversed the boost to markets from the positive manufacturing purchasing managers (PMIs) indices earlier in the week
 However, Cisco Systems beat equity analyst expectations Meanwhile US ADP jobs data fell less than expected, resulting in a flat month for January
 Confidence is still shaky, with worries over Greek sovereign debt not abating and spreading to Portugal. Ratings downgrade fears remain
 The US has not escaped either, with Moody’s warning that the US AAA credit rating would come under pressure unless more stringent actions were taken to reduce the country’s burgeoning budget deficit
 The current environment remains negative for risk trades and the pullback in high beta currencies has been particularly sharp over recent weeks
 Data in Australia will not help sentiment for the AUD too. Australian retail sales dropped by 0.7% in December, a worse than expected outcome
 The overall strategy against this background is to sell risk trades on rallies. There are still too many concerns to point to a sustained improve in risk appetite

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