Wed, 20 Oct 2010 22:32:00 +0200

Wrap-up: US stocks rally as Dollar surrenders gains

FXstreet.com (Barcelona) - Benchmark indexes in the US tailed off sharply higher on Wednesday, mainly weighed by a strong rebound on the financial sector along with upbeat earnings from airlines. The aggressive rally resumption was pushed further up after the Fed's Beige Book concluded that “modest signs of growth” were observed. The Dow Jones rose 1.18% to recover 11,000 mark, the Nasdaq Composite was lifted 0.84% while the S&P 500 gained 1.05%.

In Europe, the spotlight was taken by the UK government, after FinMin Mr. Osborne unveiled the biggest spending cuts since WW2. European benchmark indexes and a surging Pound cheered-up the news, both recovering fading strength the prior day. Moreover, BoE minutes was released, with MPC split in 3 different views; while Mr. Posen wanted 50 bl of further QE, Mr. Sentence reiterated its position for a rate hike, the rest wanted no change. FTSE-100 was up 0.44%, DAX rose 0.52%, CAC-40 moved 0.55% higher.

Earlier in Asia, lingering pessimism that China's rate hike would lead to a slow-down in its economy limited the upside scope, resulting in most benchmark indexes being sharply lower. Besides, traders had to confront a very precarious bearish picture after a very negative lead from the US, where stocks dropped strongly. The Nikkei 225 sank 1.65%, the Hang Seng dipped 0.85%, while the Strait Times in Singapore declined 0.41%. On the flip side, Shangai Composite +0.07, and Seoul's Kospi + 0.71 led the winners.

In the FX market, the Greenback had a major pull-back from yesterday highs, to surprisingly come back under suffocating pressure against its main rivals. EUR/USD, after falling to a fresh 2-week low at 1.3700, had a strong rebound to return towards 1.4000, finishing on a retreat to 1.3950. GBP/USD had one of the most volatile pat 48 h. since May 6 flash-crash, and after extending losses to a 1month low at 1.5650, UK major spending cuts triggered an upside explosion for the Pound, hitting a new daily high at 1.5873. USD/JPY hit a new 15-yr low at 80.84 but failed to gather selling support for any follow-through, allowing a recovery back to 81.20. USD/CHF pared yesterday's losses by retreating to 0.9570 although in ending on a rebound at 0.9630. Lastly, AUD/USD overcame weakness and was taken back up to 0.9880.