Thread: currency Analysis - 20/08/2008: banks are beginning to see liquidity loosen up

The USD is mixed in solid two-way trade after starting overnight in directionless activity. Traders note that interest from both sides appears solid today with volumes noticeably better than the last few weeks. If the financial crisis is finally mitigating and banks are beginning to see liquidity loosen up then it is a fair bet that the markets are returning to “normal” at some pace now. Traders note that semi-official and sovereign interest in EURO is appearing on the dips to the 1.3380/1.3400 area of technical support; despite the recent volatility EURO is well-supported on dips. Aggressive traders can buy any dip under the 1.3400 area as the bottom appears to be forming finally in that area. High prints for the EURO overnight Asia at 1.3531 but stops were the main driver traders say; low prints at 1.3396 so far today with the rate opening New York near the lows this morning. GBP tracked EURO lower with mild UK data non-supportive traders say; low prints at 1.7277 and highs at 1.7520 but rate is firm in NY trade. USD/JPY continues to sketch out a trading range but failed to extend to the top of the recent range last week but highs were a respectable 102.44 before selling pressure returned. Traders note that equities are firmer this morning which is supporting the rate a bit but also remind that oil is sharply higher this morning also which is probably lending some upside pressure keeping the rate from advancing. No matter how you slice it oil is still expensive relative to recent years and that is not a positive for USD. Other pairs are also mixed today; Aussie is higher but Swissy and Loonie are flat to lower to start New York. Traders note that today’s start to the week is technical in nature with S/R holding about where expected from last week’s action. Look for a slow start to the week as fundamentals will be light for the next 24 hours or so and traders are beginning to focus away from the financial crisis now that things are returning to more “normal” conditions. There is still a lot of uncertainty out there but the sentiment is beginning to look beyond the crisis back to the long-term USD negative economic conditions. In that environment it is likely the USD will remain under pressure. As that develops there will be a lot of two-way action for us to get positioned around.

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