Dollar Continues To Strengthen

Overall, dollar gains seen during the Asian trading session continued into the European session. Some market participants are beginning to speculate the dollar may get help in the form of an intervention, similar to what the euro had back in 2000, and this causes the currency to strengthen at a strong pace.

The Euro (Eur/Usd) fell more than 200 pips during the overnight session, continuing to move lower after the pair opened with an 80 pip-gap to the downside at the start of the new trading week. The pair has broken below all of the support pivot points, as the selling pressure continues. Currently, the euro is testing the 1.4300 area, after breaking below the 20-day moving average at 1.4360, and is testing a support line dating back to the end of 2007. Breaking below 1.4300 will possibly cause another wave of sell orders. Consumer confidence in the Euro-area remained stable at -19, in-line with market expectations. The index is just a few points above the bottom reached in early 2003.

The Pound (Gbp/Usd) fell almost 350 pips since the start of the new trading day, plunging below TheLFB S3 (1.8220) The pound is currently in a battle to remain above the 20-day simple moving average at 1.7995. The dollar has strengthened across the board on hopes that the bailout plan will be approved and the pound has weakened on negative financial news in the U.K. Net lending to individuals plunged in August, according to the latest report. The number came in at £1.4 billion, much lower than analysts' expectations of £4.0 billion. The released number is also under the six-month average, of £6 billion. The twelve-month growth rate of the net lending to individuals index has further slowed to 6.2%.

The Aussie (Aud/Usd) showed some resilience in the face of dollar strength during the Asian session, however, as the European session progressed, the aussie succumbed and moved lower. The pair has lost approximately 125 pips since the start of the new trading day, pushing the pair below the 20-day simple moving average at 0.8195 and is currently testing 0.8150. Gold prices have fallen more than $10 an ounce in response to the dollar strength, putting further downward pressure on the pair.

The Cad (Usd/Cad) had strong overnight sessions, trading in a range of 120 pips, and enters the U.S. session higher by approximately 70 pips. The pair managed to break out of the range it has traded in for the past week. Usually, exaggerated moves in the cad are limited to the U.S. session, but these are not typical times. The government plan to bailout the financial industry has caused the dollar to strengthen across the board overnight and the cad was not immune. There are no economic releases from Canada scheduled for today.

The Swissy (Usd/Chf) advanced more than 120 pips during the overnight sessions, plowing through upside pivot points, as the dollar strengthened. Currently, the swissy is testing the 20-day moving average at 1.1095, which previously acted as strong support. There were no economic releases from Switzerland this morning to counter the dollar strength.

The Yen (Usd/Yen) has had an erratic start to week. The dollar strengthened from the start of the Asian session last night and the Japanese currency weakened as Asian equities moved higher. However, Asian equity markets turned negative in the afternoon session and that carried over to European markets, strengthening the Japanese yen and erasing most of the early gains in the pair. The pair traded in a 90-pip range overnight, testing both the 100-day SMA at 107.00 and the 200-day SMA at 106.05. The pair enters the U.S. session 15 pips higher than where it started the Asian session last night.

No Help For The Real Economy

Current Futures: Dow -179.00, S&P -20.30, NASDAQ -31.00

European Trade: Despite the positive open in Asian equities, markets turned negative as traders begin to speculate that the bailout plan will not help the real economy.

European shares were also affected by the news that a Belgium bank had to been saved by the Luxembourg, Holland and Belgium authorities. In the mean time, U.K. legislators had to nationalize Bradford & Bingley Plc. Influenced by the negative news, European shares and U.S. futures are trading much lower. The German Dax fell 174.15 points (2.87%) to 5,889.35. The U.K. Ftse declined 119.30 points (2.34%) to 4,969.17. In the Asian markets, the Nikkei fell 149.55 points (1.26%) to 11,743.61. The Australian S&P/Asx dropped 97.40 points (1.99%) to 4,807.40.

Traders are starting to speculate, as they read deeper into the bailout plan, that the life preserver thrown to Wall Street will, in fact, be of little benefit to Main Street. The U.S. economy faces a strong increase in the unemployment number and a halt in retail sales. The U.S. economy will now also have to face the biggest deficit recorded to date, because of the bailout measures. However, legislators hope the plan will bring down the mortgage rate, helping the homeowners stay in their homes and banks avoid any further write-downs.

Crude oil declined, as traders speculate demand will soften. Crude oil for November delivery fell $3.06 (2.86%) to $103.83

Gold is posting strong declines because of the dollar's strength. Bullion for immediate delivery declined $10.80 (1.22%) to $877.70.

Previous Asian trade: A strong sentiment surrounds the Asian markets, especially after President Bush announced the bailout plan would be voted on later this week.

The U.S. Treasury will receive $350 billion as soon as the plan passes the Congress, sources have said. Another $350 billion would be available, but only if Congress does not specifically opposed it.

The initial plan allows the Treasury to buy mortgage assets from a wide array of financial firms, ranging from banks to pension funds. In exchange for the toxic debt, the government will receive a share in the entity under the form of non-voting common stocks or preferred stocks, and put some special conditions on the executive's compensations, still though, not all details are known or clear. The Treasury still has 45 days to issue some guidelines on what assets it would buy and how they would be priced.

While in the U.S., political figures were voting on the bailout plan, European legislators were nationalizing Bradford & Bingley, a bank in the U.K. In mainland Europe, Luxembourg, Holland and Belgium authorities had decided to shore up the balance sheets of Fortis, the biggest European bank affected so far by the credit crunch. Fortis will receive an 11.2 billion-euro ($16.3 billion) cash infusion from the three governments, against a 49% stake in its local branches

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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