17/3/08
Overnight Asia/Europe
• USD starts the week sharply lower
• Fed injects liquidity and also lowers discount rate
• BOE adds liquidity
Today’s Economic Reports
• 7:30 AM CDT Empire State Index forecast -5.0
• 8:00 AM CDT TICS
Looking Ahead
• 7:30 AM CDT Tuesday Housing Starts and PPI, forecast 995K and +0.3%, core +0.2%
• FOMC rate announcement on Wednesday
Summary
The USD is sharply lower this morning after starting firmer in Asia initially overnight. An emergency rate cut by the US Fed as well as the announcement that JP Morgan would buy troubled Bear Sterns for $2.00 a share sent the markets into a panic; USD falling to record levels against most pairs with the exception of GBP. Cable is weaker this morning on cross-spreading and liquidity issues, the BOE added roughly 5.0B GBP as liquidity concerns engulfed the European markets after the slide in Asia. Equities are sharply lower this morning and further losses are expected in the US session but cooler heads will prevail in my view, the panic that is hitting the markets right now is a great sign of a turn coming soon. GBP highs at 2.0231 were quickly sold by cross-spreaders and the rate dropped to a low print in early New York at 1.9990; the GBP/JPY cross losing over 700 points as the panic spread. EURO opened a bit higher in Asia on follow-through strength from last week and as the buying steeped up the rate soared to a high print at 1.5905 before the offers capped the move. Semi-official names and some sovereign selling were seen traders say and rumors of coordinated central bank intervention to halt the rise of EURO and Yen were making the rounds as well. Officially, there has been no intervention as of this moment excepting the US Fed action to add liquidity, USD/JPY saw heavy selling during both Asia and European overnight action and lows were seen at .9576; highs in Asia were actually better than Friday’s close at .9912 but the rate easily succumbed to panic selling. All the pairs have recovered off their lows and are looking very much like an exhaustion break has just occurred. EURO has fallen back to make lows during New York at 1.5726; overnight Asian lows at 1.5675 still holding. With today’s emergency moves by the US Fed and the BOE I think the markets are losing confidence in the banking system near-term. By moving aggressively so close to a regularly scheduled FOMC meeting I think the Fed is telegraphing that the problems are worse than discussed. Get ready for some big volatility this week.
USD/JPY Daily
R3: .9880
R2: .9820
R1: .9750/60
Current Price: .9648
S1: .9570/80
S2: ?
S3: ?
Rate plummets to a new 12-year low and now is in panic mode. In my view, panic don’t pay so aggressive traders can look for a buy point soon as the rate reaches for one more low when US data for today is out. People think that the world is ending and cooler heads know to take advantage of this near-term. Look for a bounce out of this .9500 handle today and for volumes to suggest that the shorts covered into the break. Take a lesson from history: “Buy when there is blood in the streets”—JP Morgan
EURO/USD Daily
R3: ?
R2: ?
R1: 1.5900/10
Current Price: 1.5802
S1: 1.5720/30
S2: 1.5670/80
S3: 1.5620/30
Rate extends rally on the panic overnight and is likely to be experiencing an exhaustion top. Look for aggressive jawboning of the EURO’s excessive price and some steps to lower the value this week. Sellers are there traders say but the market is in the grip of panic traders say. Once things settle down the rate will likely see some profit taking. A fall back likely to be seen as a “dead cat bounce” so be careful if looking for the top; you need a high volume sell-off.
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