Forex News and Events:

The US equity markets closed higher yesterday, on the back of better than expected Chinese PMI data and speculation that China will unveil another fiscal stimulus package. This positive reaction highlights the expected pull China has over the global economy. However, this morning there are no indications of any new measures and the market is discouraged by the mixed messages by Chinese Premier Wen Jiabao. Premier Wen stated that China will increase investment in 2009 to CNY 950bn, but also indicated that he didn't see any pressing need to enlarge the CNY 4tr economic stimulus package. He did say that China needs to "reverse the economic slide as soon as possible" and that China will strive to meet the 8% economic growth target. We expect the optimism in the equity market to be short lived, as all sectors except financials rallied. Energy sector following crude higher lead stock, as speculation that OPEC might opt for a production cut at their next meeting increased. Overall, without a meaningful rally in banking stocks we doubt markets risk appetite will increase and see equities to head lower. From an FX perspective, we expect the USD to be the main beneficiary of risk aversion trade and will be watching CEE4 currencies carefully for further signs of stress. EURUSD was able to rally off 1.2460 to 1.2664 but we expect another attempt on 1.2424 near term. As USDJPY approaches the psychological 100 level, we expect YEN selling frenzy to increase and long term players start entering the trade. Yesterday, Gold rallied off the $900oz support and anticipate a near term test of $925.31oz resistance. On a final note, the US data was unsurprisingly weak. US Non-manufacturing ISM decreased from 42.9 to 41..6 and ADP employment change was -697k vs. -630k exp, which is in line for Friday's nonfarm payrolls. And the tone of Fed's Beige Book was predictably weak, as the economy worsen further and a meaningful pickup is not expected until late 2009. Today will be dominated by Central Bank policy announcements from the BoE and ECB. Both central banks are expected to ease interest rates by 50bps, to 0.5% and 1.5% respectively. For the BoE more importantly than the rate announcement (which is fully priced in), markets will be looking closely for mention of quantitative easing. The BoE is expect to receive the all clear to begin QE from the Treasury shortly, so details regarding limits and execution would be of great interest to the market. In regards to the ECB, we expect Trichet to highlight the fact that growth risks in the Eurozone have increase significantly. In the preceding press conference the issue of quantitative easing will most likely be asked and any evidence that this approach is seriously being considered will weigh heavily on the Eur.