Stocks turned sharply downward today as risk off swept the markets. Weak PMI data out of China sent AUD sharply lower in Tokyo, along with the Nikkei index. The Yen also surged, USD/JPY plunged to 97.89 and AUD/JPY, having pressured 106 last week, is now below 100. Likewise, AUD/USD is down nearly 300 pips, from Friday's close. This pair is fast approaching 1.03. EUR has shown some resilience, but still gave up 50 pips against the greenback. This is more evidence that the structural pain for this pair is over and that a slow and steady recovery to pre-crisis levels in now in the cards. At the very least, the "sell the Euro on any bad news whatsoever" crowd appears to have exited. Certainly, if the European sovereign debt crisis abates, and risk appetite increases (as evidence by summer stock market boom), EUR/USD could well approach the 1.45 level. Back in North America CAD has traded with broader market; USD/CAD is back above the 1.02 handle, closing in New York at 1.0241.
Emerging market currencies have also been slammed. INR and THB were both down a bit, but the real damage was seen in ZAR and my beloved MXN. ZAR is down nearly 3000 pips against the dollar, a Rand sell off which basically erases last week's rally. USD/ZAR is now poised to test multi-year highs. Given the market tone on South Africa, and its shaky fundamentals, I see this pair going to 10.
MXN got whacked, after briefly rallying on the Tokyo open. Though it appears that MXN is still strongly supported by local fundamentals, it is critical to maintain objectivity. I missed an opportunity to book some profits, though I added to my long MXN position this afternoon. On USD/MXN, I am still targeting 12, for now.
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