10-16-2008, 12:02 AM
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Senior Member
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Join Date: Apr 2008
Posts: 156
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Forex Analysis - 16/10/08: weakness in the financial markets
The USD is ending the day mixed today after a solid two-way overnight session last night; holding on to gains against the GBP and EURO and making new highs around the London fix. Forex traders note that focus remains on the weakness in the financial markets and a 500-plus point drop in the DJIA today didn’t help sentiment despite weak economic data this morning. US data was USD-negative this morning and more is due tomorrow leaving the fundamental picture for the Greenback looking dismal; so why are traders still buying USD today? Some desks suggest that the tide is beginning to turn on that thinking and note that despite the credit-crisis and the liquidity crunch, the major pairs are all being sold for JPY for the most part. If the situation in the US is similar to the situation in Japan during the 1990’s then a sharp devaluation of the currency would be expected. It is hard to argue for a stronger USD long-term if the Fed will be forced to drop rates back down to the 1.0% level or lower in order to attempt a recovery from a recession/depression;; which the US is no doubt on the verge of. Still, USD remains bid against most pairs today with the exception of JPY. GBP high prints at 1.7604 went unchallenged today in New York and at the London fix dropped to new lows; traders note stops triggered along with active selling for a low print in late NY at 1.7298. GBP is very near a technical buy-point in my view after this morning’s failure to hold gains above the 1.7550 area; look for bids around the 1.7250 area overnight to support. EURO followed GBP lower for a low print at 1.3495 and is hovering off the 1.3500 handle in light trade. Volatility is likely a sign of near-term bottoming and I would look for a buy point in EURO on further weakness to the 1.3420/30 area if we get it overnight. USD/JPY fell victim to the weakness on Wall Street today holding its own for most of the day near the opening ranges but unable to show any strength at all in NY; low prints came as the DJIA slide off with current low prints at 100.42 making for a try on weekly lows but finding a bit of support; look for more downside in Asia overnight. USD/CAD continues to baffle traders as a rally through the 1.1850 area topped out at 1.1889; a full three big figures off the lows seen in Asia overnight. Panic trading of the pair likely was augmented by falling oil prices as Crude dropped three bucks to trade at another weekly low. Traders remind that the USD has a significant economic problem to reflect and current pricing is looking very toppy; but until the sentiment turns on the credit crisis the USD will likely suffer more two-way action with lots of volatility. Look for the USD to remain range bound after a try for slightly better highs overnight as tomorrows data is likely to be unfriendly.
Analysis Provided by: Forexpros.com - Written by Jason Alan Jankovsky
Last edited by ForexAnalysis : 10-16-2008 at 12:19 AM.
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