It’s been a wild ride in the markets today from anyone’s perspective; most notably the equities meltdown on Wall Street thanks to the panic surrounding the failure of Lehman Bros. and the potential failure of the insurance giant AIG. Speculation is raging with the “too big to fail” mentality so my question is “Why is the Fed involved?” forex trader’s note that almost lost in the day’s action is Oil dropping below the psychological $100/BBL price level to finish the day in the $95 handle. Although most analysts agree a price fall in Oil is welcome the jury is still out as to how much this represents a panic liquidation by traders to meet financial obligations elsewhere or just outright fear by the longs. In the case of the USD, the Greenback has suffered huge volatility the past 24 hours and more is expected as the closed-door negotiations continue on possible bail-out options available for the financial markets. To end the day the USD is mixed, marginally higher against GBP and EURO while ending lower against Yen and Swissy. Traders note that after the initial panic long-liquidation seen overnight Asia the USD stabilized and traded within tight ranges during New York. Also noted were the lighter volumes and patchy order flows as stops were cleared both ways intra-day leaving traders willing to sit on their hands until more data is known. GBP traded to a high print at 1.8130 overnight before dropping to trade the 1.7900 handle for most of the day; cross spreading for EURO and Yen was heavy and the GBP will likely see more whipsaw near-term. EURO also rallied hard in Asia for a high print at 1.4482 before falling back as well; ending the day around the 1.4200 handle after posting lows in New York at 1.4083 as the opening panic continued to spook traders. For the most part, the speculation that the Fed will need to cut rates unexpectedly tomorrow helped hold the USD on the softer side as late longs bailed during early Monday’s trade. In my view, today’s market environment and near-term volatility is a once-in-25-year event. Wise traders will make use of this volatility carefully but if the continuing financial crisis continues to unfold with the current level of panic the fortunes of the USD do not look bullish in my view. Look to buy dips in the GBP and the EURO the next day or so as the Greenback will likely continue to fall; most likely hard against the Yen in my view.

Forexpros.com