The Dollar Post Gains On Strong Momentum

Overall, the dollar continued to post gains in the European session as traders speculate the government plan to save the financial system will prevent the Fed from further widening the yield spread. The market has moved on strong momentum, both in the Asian and European trading hours.

The Euro (Eur/Usd) is now struggling to break under a support trend-line that has held the pair for 7 days. During the overnight session, the pair plunged 140 pips, one day after the euro closed the day giving back early gains. In the last few sessions, the euro has seen a strong surge in volume and momentum, which has made the pair go far beyond the daily ATR. The German PPI was released at -0.6% for the month of August, diverging from the market’s expectations of -0.4%. This is the first time since January 2007 that German producers have seen lower input prices. Even so, the year-over-year read still stands at 8.1%, the highest rate of inflation seen in the last decade. The largest upward pressure came from energy products in the prior months, but now this trend is reversing

The Pound (Gbp/Usd) has already fallen 250 pips and is heading, very quickly, towards TheLFB S3 (1.7885). The pair declined during both the Asian and European sessions since the market is currently looking at long dollar orders. The pair has broken below the 20-day simple moving average. The pound, similar to the euro, has seen very strong volumes in recent sessions, and has often exceeded the daily ATR. There were no economic releases from the U.K. this morning.

The Aussie (Aud/Usd) is going against the trend and is advancing against the dollar. The pair had gained approximately 100 pips during the overnight session, before retreating, and is now trading below 0.8100, still in positive territory. This is the second consecutive day in which the Aussie is advancing, but with gold prices falling overnight, the pair is weakening and may very well fall in line with the rest of the market and succumb to dollar strength.

The Cad (Usd/Cad) has, once again, seen volatile trading during the overnight session, something that that is becoming more and more common. The pair advanced almost 60 pips, at one point, but is now struggling to break significantly higher above the 20-day simple moving average at 1.0630. There are no economic releases from Canada scheduled for the remainder of the week, but the pair will move in response the dollar and commodity markets.

The Swissy (Usd/Chf) is now testing TheLFB R2 (1.1235) after it gained almost 200 pips during the overnight session. The daily chart shows the pair ran into the 1.1280 area, which proved to be a strong resistance in the past, and held strong once again this morning. At the same time, if the pair successfully breaks higher, reaching 1.1290, it will manage to close the 90-pip gap seen at the beginning of the week. There were no economic releases from Switzerland overnight.

The Yen (Usd/Yen) had advanced in the overnight session at a very strong pace. The pair is trading higher by approximately 180 pips since the close of Thursday’s U.S. session, breaking above the 100 and the 200-day moving averages. The pair tested the 20-day simple moving average but has failed in its attempt to break above. If the pair does manage to break higher, it will soon run into TheLFB R3 (108.00), which is where the 50 day simple moving average is located. The strength the pair has been a direct consequence of global equity markets moving much higher.

Very strong gains on Government's plan

Current Futures: Dow +289.00, S&P +43.70, Nasdaq +40.50

European Trade: The global equity markets are thriving after the U.S. government announced it intends to step into the market to save the financial system and, to some extent, the economy. This is happening one day after the major central banks announced a joint effort to enhance the dollar’s liquidity in the inter-banking market.
Global equity markets have produced very strong gains overnight, from the Hang Seng Index, which rose a whopping 9.61% to the U.K.’s FTSE, which jumped more than 6% in the first trading hour and back to the U.S. futures, which are pointing to a triple digit opening on Wall Street. All of the major indexes have traded, are trading, or will trade in positive territory.

The markets seem to be confident that the plan to shore financial companies’ balance sheets will be a complete success. The news it seen as so important that it has caused the markets to swing from record losses to record gains. Other news that has had a positive effect on global equity markets was that regulators from U.K. and U.S. have banned short selling shares of financial institutions.

The Central banks’ intervention, together with the stock market regulators and the U.S. government helped Asian shares rise from a three-year low. The same news items helped the European indexes put aside four days of selling. The Nikkei rose 431.56 points (3.76%) to 11,920.86, the most in eight months. The Australian S&P/Asx rose a massive 196.80 points (4.27%) to 4,804.10. The German Dax soared 239.12 points (4.08%) to 6,102.54. The U.K. FTSE gained 338.80 points (6.94%) to 5,218.80, the most since January.

Crude oil is advancing for a third day in a row, after the government announced it would step into the market to save the financials (and the economy). Crude oil for October delivery gained $1.33 (1.36%) to $99.21

Gold had fallen at a very strong pace during the Asian session, reversing recent gains. Bullion for immediate delivery fell $64.40 (7.18%) to $832.60.

Previous Asian trade: The government plan to shore up the financial markets helped the U.S. stock market post the biggest gains in the last 6 years. At the same time, the news item helped the Asian shares start the day on the positive side.

The proposal made by Senator Charles Schumer, to set up an agency to strengthen the financials’ balance sheet made equity traders enter in a frenzy-buy mode. The Dow Jones immediately jumped 617 points, from the low of the day. At least 68 companies from the S&P index jumped more than 10%. Traders bought the shares of the financials corporations, speculating once again that the worst is behind. Wachovia jumped 59%, while Morgan Stanley found the strength to recover a 46% decline and even post some a small gain. Sources say this week alone, $3.6 trillion had been erased in the global markets.

More good news is that banks started borrowing from the Fed, something that will certainly help some balance sheets. Yesterday, the Fed loaned a record $59.8 billion to financial companies and an additional $28 billion to AIG.

The Asian shares rose in response to the U.S. government plan to stop bank failures. The financials led the gains on the Asian stock markets, helping the major indexes rise from a multi-year bottom.

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

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