FOREX TRADING

Today saw risk making another attempt at a comeback. Friday’s attempt at a risk comeback was a red herring and looked a bit fishy anyway since it was only a flurry of trading at the close of the US equity session that created the impression of a reversal. Today’s reversal in risk has far more technical credibility because of the way in which equities gapped lower and traded at new lows for the cycles before seeing a long rally from almost the open of trading and then all the way into a very strong close, with a closing level slightly above yesterday’s close. The Dow closed back above the psychologically critical 10,000 level that gave way during the day. Another boost came in the form of a strong surge in the May US Consumer Confidence survey, certainly a surprise considering the developments in markets this week and the ongoing tragedy of the Gulf of Mexico oil spill.

Looking at other risk indicators, however, we see little or no improvement in the likes of risk spreads and signs of accelerating interbank stress levels and we wonder if equities and currencies are playing some crazy little reflexive game based on short term trading flows. Still, one important market that at least partially supported the risk-on stance today in the US was the bond market, where a somewhat weakish 2-yr. note auction (yield about 1 bp. higher than expected and bid to cover at 2.93 vs. 3.06 six-month average, though one still has to note that the yield at the auction was a record low), so this also took the pressure of the JPY crosses after EURJPY had crossed below 109 briefly earlier in the day. (more…)