[ForexNews]

Investors have decided to tweak the nose of swine flu today and run back to risk trades in a big way; equities are up and growth/commodity currencies are doing much better, mainly at the expense of the USD and the JPY; the NZD is up, closely followed by the AUD (and CAD). So is this a brave new world where pandemic concerns have been pushed aside or has something else diverted the market’s attention? Probably the latter as there are still some unpleasant swine flu headlines to contend with – the first confirmed US death earlier today, for example. The turn in the trend of the USD can perhaps be explained by a spike in demand for currencies from Asian and Eastern European central banks today; Asian demand was noted for EUR in particular. The FOMC meeting has attracted some attention; monetary policy has reached the zero bound and the Fed has embarked – slowly so far – on its Treasury purchase plans. The pop in long term rates, with 10s back to pre-“QE” levels, and speculation that the Fed wants to keep 10 year yields in the 3.00-3.10% range has prompted speculation that additional measures could be announced today (more buying or other measures) that would help achieve this supposed goal. That seems unlikely at the moment but the uncertainty may keep the USD under pressure ahead of the FOMC announcement. If the Fed meeting does not produce any surprises, the USD may well regain a little stability; the question then is perhaps what happens with US yields? Higher US yields have narrowed spreads versus the euro zone (which is typically USD supportive) but EUR/USD seems to be bucking that particular trend today at least. It may take a little time to tell for sure but the pressure on the USD and Treasury market combined in the past 24 hours may well reflect worries that the Democrats are a seat away from a filibuster proof majority in the Senate after Sen. Specter’s party switch, which may prompt speculation at least of a more “progressive” (or costly) government agenda.

We note that a few markets are close to some very important – potentially – technical break out points; EUR/USD is finding good support on dips so far this week and may test key medium term resistance at 1.3339 shortly; AUD and NZD are also seeing good demand off their respective lows over the past couple of weeks (similar to the CAD); key resistance for both the AUD and NZD (0.7325 and 0.5814 respectively) are out of reach in the short term but in markets that are moving fast, they are hardly out of reach either. The USD may be in for a spot of broader weakness.