Waiting For The Two Central Banks

Overall, the market is now waiting for the two central banks to announce the interest rate policy. Both the Bank of Japan and Reserve Bank of Australia's actions will have a profound effect over the currency market in the following period. In the meantime in the Asian session, the currency market retraced a small amount of the dollar's strength from the last few days.

The Euro (Eur/Usd) extended the losses from the last few days of trading yesterday, falling another 150 pips. This comes after the euro saw a 120-pip gap at the Sunday open, due to weekend trading. The recent dollar strength had made the euro touch a 14-month low, while the relative strength index is trading slightly under the 30% oversold line.

The Pound (Gbp/Usd) tumbled 200 pips and made a new low as the market expects the central bank to cut the key interest rate on Thursday. The U.K. economy may face some hard times ahead, as recent reports suggest. This incertitude over the country's economics is reflected on the charts, where the pound has tumbled since the November 2007. The Asian session found the pair moving in a tight channel, unwilling to break anywhere.

The Aussie (Aud/Usd) tumbled 600 pips in only one trading day, an absolute record for the time being. The aussie was driven lower by the fact the market expects the Reserve Bank of Australia to cut 50 basis points tonight and that the market has sold everything seen as riskier, including the pair. However, in the Asian market the aussie recovered a small portion of the last day's selling, gaining almost 100 pips.

The Cad (Usd/Cad) advanced for a seventh consecutive day yesterday, gaining almost 700 pips over the same period. Yesterday, the pair gained 190 pips as crude oil broke under the $90 a barrel benchmark. Much of the move came around the U.S. session open, the time when the pair usually moves. In the Asian session, the cad moved without any direction or momentum around the session's open price.

The Swissy (Usd/Chf) closed the trading day near the second resistance level, TheLFB S2 (1.1485), after it gained a little more than 100 pips during the intra-day session. Yesterday the pair managed to break above the 1.14 resistance level for the first time this year, making the pair trade at a 10-month high. During the Asian session, the pair moved in a 50 pip range, around the high of the previous session.

The Yen (Usd/Yen) saw a lot of strength yesterday, as the market is in a risk aversion mode. Riskier assets, such as carry trading, are sold for the safety of treasuries and this makes the Japanese yen strengthen across the market. Only yesterday, the pair fell nearly 500 pips at one time, however, at the close of the U.S. session, the pair fell 'only' 350 pips. During the early hours of the European session, the Bank of Japan will announce its monetary policy stance.

Asian Stocks at Multi-Year Lows Amid Credit Crisis

Asian trade: Global markets are extending the losses from the last period, as the market sees no end in sight for the credit crises. The major equity markets posted impressive declines yesterday, having the DOW under the 10,000-point benchmark for the first time since 2004.

Problems in the credit market continue too. The Euro-LIBOR, tracking the cost of borrowing euros at the inter-banking level, rose to a new record for the seventh time in a row. At the same time, the cost of protecting against default, a corporate bond rose worldwide as traders anticipate some debt ratings will be cut. The cost of protecting a $10 million bond from Goldman Sach climbed 58.5 points to 460.5. This means a trader would have to pay $460,000 to insure a $10 million bond from default originated by the financial company.

In Asia, the Japanese stock market erased every gain made in the last 5 years, while in Australia the market reached a 3 year low. In the third quarter, the MSCI Asia Pacific index, which tracks the major Asian indexes tumbled 22%, after a number of important banks entered into bankruptcy. The Nikkei tumbled 324.63 points (3.10%) to 10,148.46, while the Australian S&P/Asx declined 19.90 points (0.44%) to 4,520.50.

Crude oil rose for the first time in five days, retracing some of declines from the last few days. Crude oil for November delivery gained $1.14 (1.30%) to $88.85

Gold advanced in the last few trading sessions as traders see the precious metal as an alternative investment. Bullion for immediate delivery fell $0.50 (0.06%) to $865.70.

Previous Wall Street trade: Wall Street staged a come-back in the last hour and 15 minutes of trading, as traders perhaps grew a bit more optimistic regarding the TARP plan. The DOW, which had breached 9900, made back more than half of its 800 point loss.

"Most economists had been saying that the Treasury's plan to purchase distressed assets was insufficient for the problems at hand," said Matthew Carniol, chief currency strategist at TheLFB-forx.com. "However, the TARP legislation granted vast new powers to the Treasury and Federal Reserve, and those powers were not fully appreciated by market participants at the start of Monday's trading. For example, the Treasury now has the legal authority to re-capitalize the banks. Also, the Fed can now pay interest on reserves which essentially gives it the ability, should it decide to do so, to act as the "counterparty of last resort" in the interbank market. Also, TARP allowed the Treasury to guarantee the Federal Reserve against any losses it may incur, which means the Fed can make both secured and unsecured loans at various terms. In essence, the ability is now there to back the interbank lending market with the full faith and credit of the U.S."

Previous European trade: In Europe, things appear somehow worse as the major indexes opened deep into negative territory from the start of trading. The news that Hypo Real Estate requires a bigger credit line sparked a selling wave. The bank is seen as the second-biggest property lender in Germany, and one of Europe's powerhouses. The selling pressures intensifies as the U.S> session plunged on the open. The German Dax tumbled 410.02 points (-7.07%) to 5387.01. The U.K. Ftse plummeted 391.06 points (-7.85%) to 4589.19.

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

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