TODAY FOREX IN REVIEW

As the German Constitutional Court Decision regarding the European Stability Mechanism (ESM) draws ever closer, the European Union is considering plans to use the ECB as a bank regulator. Under the proposal, the ECB will supervise national regulators and end the comfortable relationship between regulators and banks. The newest rescue plan is hinging on the German's who have been quick to dismiss the merits of unlimited bond buying all the way to highest levels of government. Stock indices ended mostly higher with the German DAX climbing 1.34% followed by a 1.15% gain in the Euro Stoxx 50. The Swiss SMI and FTSE 100 dipped slightly, moving -0.07% and -0.02% each to the downside. EURUSD jumped back above to the 1.28 handle to 1.2867.

While the main news today focuses on the German Court decision and beginning of the September FOMC meeting, Asian stocks are more confident on the prospect of further Chinese stimulus. The recent infrastructure plan coupled with Wen Jiabao's comments regarding room for additional stimulus have propelled equities higher as bond risk slides. Major indices are trading to the upside in the overnight session, led by the 1.46% strengthening in the Nikkei. The Hang Seng and Australian ASX are both higher, rising 1.09% and 0.76% respectively. Markets are also more positive following the Japanese machinery order figures smashed expectations. USDJPY has ticked up 0.10% to 77.850 as AUDUSD soars 0.31% to 1.0466.

The dollar has resumed its pullback ahead of the opening of today's two-day FOMC meeting. Speculation has risen about announcement of further easing as global central banks move to shore up investor confidence. The dollar index (DXY) fell back below the 80 handle to 78.490 as the 10-year yield continues to rise. The weakness in employment is spurring sentiment that Ben Bernanke will act to avoid a double dip and strengthen the recovery. Equity indices closed higher, with the Dow Jones Industrial Average gaining 0.52%. The S&P 500 increased 0.31% while the Nasdaq closed modestly higher, rising 0.02%. Energy commodities and precious metals are elevated on stimulus hopes with crude oil ticking back above the $97 handle to $97.11. Precious metals have also strengthened, led by the 0.22% rise in silver futures.
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