A Forex View From Afar

First signs of relief are here

The global markets indicate that the first signs of relief are here, after indicating investor fear and uncertainty for the last few weeks .

The so-called “fear index”, the VIX, fell from the all time top reached on Friday, and is now trading around the 53 point value, showing the market has found some confidence. Libor, the rate at which banks (should) lend to each other, declined this week as the recent government auctions restore the banks confidence, to some extent. The 3-month dollar Libor rate fell 12 basis points, the most since the middle of March, while the corresponding euro rate fell 7 points, the biggest one day decline this year. It also should be noted that despite recent developments, money rates still are at unusual high levels, much higher than in current market conditions.

For now, it looks like the government/central bank interventions were a success, at least with the money market rates. However, in the currency market, the latest actions had a limited affect. The market started to slowly buy risk, but so far, the currency pairs did not manage to break any important support or resistance levels, and most of the time they just moved around swing points. If no rumors will emerge again about bankruptcies and bank failures in the following sessions, it is very likely traders will start to look for overnight swaps, making the yen crosses move higher.

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