Forex

Global growth doubts returned with the G7 statement, various comments and the drop in global shares – down 1.5 to 2.0%. The interesting outcomes of the G7 was that they wanted acceleration in the appreciation of CNY and they got a significant correction in JPY crosses instead. Their comments about global growth and risks seems to have had more effect along with the Turkish PKK issues, Polish elections, and some real doubts about 4Q outlook and beyond for global companies. The 3Q earnings are weak as expected but the outlooks seem to drive much of the present concern. So risk aversion makes sense and in FX that has always been about JPY and then CHF which is what the overnight trading shows. The volatility implied from the options market shows this clearly with 1M JPY up 2% and the concern about 112 JPY coming back into the market. So on a day where there is light new – a few FED speakers and more rehashing of what the G7 really meant and wanted – expect the world to be trading on lowering risks. US rate cuts are not back on track for October and the USD seems a bit out of place in this game as the repricing over the weekend is about USD gains vs. Europe . That may not last should the data ahead from Europe show more decoupling of global pain. Right now that is not the case – so many are just waiting for more data – as always. EUR 1.4130-40 is first support then 1.4080-90 and finally 1.3990-00 – doubt we get that far making room for a 1.4415 test later in the week should data from IFO and PMI allow it. Expect the most important item for the week to be about US jobs – jobless claims, jobless anecdotes and anything that will show the real story about US credit crunch effect on the real economy.