Trust is the Problem, not Liquidity...

Earlier this week, the central banks around the world gathered and collectively decided to cut interest rates for their respective countries in order to slow a fast moving global financial meltdown. The initial reaction in the markets was one of surprise more than anything else. Unfortunately, the move did little or nothing to inspire confidence in the strongly risk averse markets.

Thursday, the US stock market had an afternoon selloff that sent the Dow below 9,000 for the first time in five years, falling 678.91 points. Twenty stocks fell today for each one that rose on the New York Stock Exchange.

CNBC writes: "It feels like 1997 all over again in Asia. Japan down 10 percent, Hong Kong down 8 percent and Australia down 8 percent as markets around the world are gripped by recession fears. And the selling continued this grim Friday session."

There is so much activity right now, that it is difficult to know why markets are responding as they are. Is it liquidity injections or global interest rate cuts.

Paul Kedrosky writes: "It's impossible to know any more whether it's the illness or the medicines that are hurting things here. And even if we have jury-rigged a semi-functional banking system again, the rapid contraction of the real economy is set to feed back into the financial system, causing more credit problems. The effects will be vicious."

It would be ideal if the G7 ministers were to make some bold moves and get out in front of what is likely to be increased short selling. The general lack of confidence in the global financial markets is at the core of this problem. No amount political trickery or interest rate shell games are going to stop this global financial crisis. We need solutions to credit issues! In order to bring stability to the markets, governments are going to have to step in and buy much of the debt. Giving the banks money they won't lend is pointless.

Trust is the Problem, not Liquidity…

Daily Forex Market Outlook

The "Flight to Safety" continues in Forex markets as investors used Friday's Asian and early Euro sessions buy the Dollar and Yen once again. As markets around the world seem to be setting record lows with each new passing day of trading, we will continue to trade with the risk aversion and cautiously short the carry and commodities.

AUDJPY - The AUDJPY has seen perhaps the most severe losses over the course of the past month of any of the carry trade. Dropping over 2000 pips, the slowing Aussie has fueled the carry sell off fire. The selling shows no sign of letting up and shorting any significant rally at this point could yield hundreds of pips.

EURUSD - Consolidating over the past 5 days, the EURUSD is primed for more losses as uncertainty hangs over the EU and their lack of intervention. We will look to sell a break of the bottom or a bounce of the top of the 1.3450-1.3850 range

GBPUSD - The Sterling has again been on a steady decline over the past couple of weeks. Looking very similar to a sell-off trend that a commodity pair would normally make, GBP weakness and risk aversion will probably drive this pair passed 1.50 in 2009. In the near term, we are looking at 1.66 to be significant support (61.8% of 06/01-11/07) and will look to sell to that mark and heavily short a break.

USDJPY - There are rumblings of the Japanese looking to begin to intervene as the Yen strengthens, but a move toward testing the March 16th lows at 95.73 should happen before then. Look for the weekend gap to perhaps even push past the lows if Friday sees another heavy sell-off.

IntegrityFX

DISCLAIMER:

Leveraged foreign exchange trading carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.