Dollar Falls on Coordinated Bank Rescue in Europe

The Usd gave up substantial gains against most of the G10 based on rescue plan constructed by central banks in Europe and Asia. The EurUsd rose over 200 pips to the low range of 1.36, while the UsdJpy was mostly flat down about 13 pips to 100.50. The GbpUsd rallied nearly 400 pips to the low 1.74 area following the closure of the G7 meetings. Equity markets posted strong gains with the Dow up nearly 400pts after one of the worst weeks in trading since the great depression. Commodities were mixed with softs and energy related products trading higher, while metals decreased with gold down 2.30% at 830. US bond markets are closed due to the public holiday, but European govt. securities sold off with the UK 10yr yield wider by 18bps.

Activity in Europe was the main focus in FX news, this is based primarily on the plan for central banks to invest directly into financial institutions that pose systemic risk to the greater economy. This effort had a strong impact on the markets as investor confidence is slowly being restored in the Euro and Cable. The sterling posted its strongest upward move in over a month, the price swings are attributed to the historical levels of volatility we are seeing in the majors. There is definitely a need for further stability in the marketplace, but the recent coordinated resolution is a major step. We hold our stance that the EurUsd should decline to 1.30, and the GbpUsd to 1.62 by year-end.

Investors are looking for signs of a recovery, as the govt. has taken significant steps to revive the financial markets. High levels of volatility have caused extreme price swings, which is difficult for Traders to endure. The current economic environment will have to improve through stronger housing data and lower inflation would have take great pressure off the consumer. The other major component to analyze regarding the direction of FX markets will be the easing in rates abroad. This will close the window between the US Fed Funds rate versus higher yielding rates in Europe and Asia, also conducive to long term dollar strength.

AC Markets
http://www.ac-markets.com

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