Middle Eastern Sovereigns ‘Huge’ EUR/JPY Buyers

U.S. Dollar Trading (USD) - The market volatility ratcheted up overnight with the largest drop in stocks since November on Monday just providing better levels for buyers to enter. EUR/JPY and US stocks rallied aggressively from the European open buoyed by news that BOJ Governor Shirakawa will resign early and news of a leveraged buyout of Dell computers the largest deal in 5 years a sign ofoptimism in the global economy. Looking ahead, weekly Crude Oil Inventories forecast at 2.7m vs.5.9m previously. (Note this is the main weekly data for OIL/USD)

The Euro (EUR) was the driver of the market via the EUR/JPY cross which fell to Y124 at the start of Europe before running into what is being called a ‘monster’ EUR/JPY buy order out of the Middle East. In one of the sharpest moves higher in recent memory we saw Sovereign names from the Middleeast appear aggressively on the buy side in what many analyst assume is a foreign reserve shift away from the Japanese Yen. The Sterling (GBP) the GBP/USD was whippy hitting 1.5800 after better than expected services PMI in January at 51.5 vs. 49.5 previously back intoexpansionary territory. Fresh selling emerged at the highs and acceleratedlower to fresh trend lows as EUR/GBP buying undermined the Pound once again.Looking ahead, January Halifax HPI forecast at -0.2% vs. 1.3% m/m. Also December German FactoryOrders at 0.8% vs. -1.8% previously.

The Japanese Yen (JPY) - Once again those buying into the correction were paid off handsomely last night with the BOJ Governor Shirakawa bringing forward his resignation date to allow a more dovish central banker to be appointed. USD/JPY bounced from Y92 to Y93.60 by the end of New York and in sight of the major Y94 resistance and bull target. EUR/JPY was even more volatile in a 340pip range as the sellers were overrun.

Australian Dollar (AUD) - The AUD/USD was almost in another world yesterday spending most of the day grinding lower to major range support at 1.0370. The catalyst was the RBA holding at 3.0% but stating that there was room for more rate cuts if needed because was well anchored for the foreseeable future. Also noted in the statement was a comment on the looming end to the mining investment boom. Looking ahead, January Retail Sales forecast 0.3% vs. -0.1% previously.

Oil & Gold (XAU) - Gold rallied and tested stubborn resistance at $1685before reversing back to the lower $1670 region. The daily lows are getting higher but we have failed to break $1685 on three occasions now so the technicalare unclear. OIL/USD rallied to $97 before consolidating between the figure and $96.50.

Pairs to watch

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TECHNICALCOMMENTARY