New York Session – October 19, 2010 4:18 PM

The surprise rate hike from the PBOC dominated market direction as resulting in a sharp correction in the US dollar on a decrease in commodity prices and increased risk aversion. The dollar gained amid concern that central bank action in China may rein in growth in the world’s second largest economy. Risk sentiment soured and investors demanded the greenback as a safe haven as it was viewed as more attractive at current levels than the usual safe havens (JPY, CHF, Gold). The yen, franc, and gold all have experience significant gains in the past several weeks as the dollar has weakened on the back of QE2 speculation. The dollar was at oversold levels and the drop in risk sentiment gave markets a reason to cover dollar short positions. On the economic data front today, US housing starts for September rose to 610K from the previous 608K (revised higher from 598K) while building permits fell to 539K (cons. 575K prior 571K). Full text »

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