Bernanke and the Federal Reserve responds to the current market cries with an emergency 75bp rate cut to temporarily stop the bleeding sustained in the equities markets around the world . This has limited the downturn on the Dow Jones for the time being with its peak drop today of -300 points. With no hesitation, the Bank of Canada followed suit by cutting interest rates by 25bp to further ease the huge draw downs occurring on the TSX stock index.

According to DailyFX’s Kathy Lien, the market “still expects another 25 to 50bp on January 30th because 75bp is just not enough. It failed to push Dow futures back into positive territory - we may only get a dead cat bounce in stocks which necessitates further easing.”

The Fed’s primary concern was increasing downside risks to growth, a deepening of the housing contraction and softening labor markets. The announcement has driven the US dollar lower against every major currency with the exception of the Japanese Yen. Significant rebounds have been seen in all of the carry trades. Further easing equals further dollar weakness.

Meanwhile a report put by PFXGlobal suggests a rate increase by the Reserve Bank of Australia due to rising inflation coming from Chinese demand for mineral resources. Keep a close eye on this week’s Australian Consumer Price Index (CPI) announcement. If it is high, watch for the AUD to gain strength.

No trading today due to the copious amounts of news flows coming out from the U.S. however the trend is still down wards on U.S. based pairs.

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