Talking Points

• US Dollar, Japanese Yen Ride Haven Demand Higher Overnight
• Moody’s Downgrades 16 Spanish Banks, Fanning Euro Crisis Flames
• European, US Stock Index Futures Point to Continued Risk Aversion

The US Dollar and Japanese Yen outperformed overnight, rising against their major counterparts as Asian stocks followed Wall Street lower, driving demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark index fell 2.5 percent, erasing 2012 year-to-date gains. The sentiment-linked Australian and New Zealand Dollars suffered the bulk of the rout, sliding as much as much as 0.8 percent apiece against their leading counterparts.

The selloff came on the back of a broadly disappointing set of US economic data – which dented the outlook for regional exporters heavily reliant on demand from the world’s largest consumer market – as well as mounting Eurozone woes. Moody’s downgraded 16 Spanish banks, citing the weak economy and mounting government debt. The announcement stoked fears that lenders in the Eurozone’s fourth-largest economy (and possibly elsewhere) may buckle as Greek-linked jitters grow into a region-wide panic.

Looking ahead, stock index futures tracking key US and European equity benchmarks are pointing sharply lower in late Asian trade, pointing to continued risk aversion into the week-end. The European economic calendar is relatively uneventful, with German PPI figures amounting to the only bit of notable event risk. The US data docket is empty altogether, suggesting that little besides the Facebook IPO stands in the way of existing momentum.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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