The hangover post last week’s Federal Reserve announcement is apparent as stock markets continue to re-trace post announcement of their QE program for the next six months. The key question is whether the recent move of strength in the US Dollar can be considered to be re-tracement from an oversold state or whether we are seeing a fundamental shift in trend.

It is likely that we will see a short term deepening of strength in the USD and continued US stock reversal due to profit taking. Many traders will be taking profit on the basis that Bernanke delivered what was expected and there was no real surprise in the measures announced.

Traders wait with bated breath as to the outcome of the G20 summit in Seoul this week. Fears of a currency war
have not dissipated with significant concerns over competitive devaluation still at the forefront of traders positions. It is likely that the final statement will indicate vague comments of an agreement not to competitively devalue currency. This could temporarily boost risk appetite yet will undoubtedly be taken with a pinch of salt as governments seem hell bent on sacrificing their currency to boost economic recovery.

Tomorrows BoE inflation report is eagerly awaited. Sterling has seen somewhat of a sell off this afternoon on speculation that the BoE may increase its inflation target from 2% to 3% The report represents the first opportunity for BoE officials to weigh in on the implications of the austerity measures imposed a fortnight ago. The revised inflation traget indicates that interest rates will undoubtedly continue to stay at record low levels.

If you have any FX requirements please don’t hesitate to contact me.

Best Regards
Luke Zorab

Torfx Currency Dealer
(01736) 335285