Forexpros.com Daily Analysis - 15/09/2008

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Overnight Asia/Europe

 

• PBOC cuts interest rates

• Lehman goes bust

• USD falls hard, volatility high

 

Today’s Economic Reports

All times EASTERN (-4 GMT)

• 8:30am USD Empire State Manufacturing Index

• 9:15am USD Capacity Utilization Rate

• 9:15am USD Industrial Production m/m

 

Looking Ahead to Tuesday

All times EASTERN (-4 GMT)

• 8:30am USD Core CPI m/m

• 8:30am USD CPI m/m

• 9:00am USD TIC Net Long-Term Transactions

• 10:00am USD Treasury Sec Paulson Speaks

• 1:00pm USD NAHB Housing Market Index

• 2:15pm USD FOMC Statement

• 2:15pm USD Federal Funds Rate

 

Summary

The USD fell sharply overnight driven lower by continuing market turmoil and uncertainty in global financial markets; main story is the filing for bankruptcy protection by Lehman Brothers adding more fuel to the fear of a market meltdown. Although BoA has agreed to purchase the troubled brokerage firm forex traders don’t see the issue as resolved due to the large exposure other firms have to both Lehman stock and counterparty transactions. Stocks of major brokerage firms are called to open sharply lower in New York when equities open later today and with the potential panic that could hit the street it would be likely that the USD will suffer more volatility. Overnight the USD fell to two-month lows against the Yen dropping to a low print of 104.52 before recovering slightly; news that the PBOC cut interest rates and reserve requirements helped propel the Yen higher although the USD/JPY whipsawed with high volatility as would be expected on a surprise announcement. USD would have fallen farther in my view if the Asian markets would have been open; Japan, China and Korea all closed for a holiday today. I would expect more follow-on selling of the USD/JPY in the coming days; the rate opens New York at 105.20 area. GBP gapped higher and ran for a high print of 1.8130 before aggressive sellers capped the move and reversed the pair; traders note that most of the move was short-covering and panic buying from the news released. After scoring the high prints the rate reversed to fill the gap dropping back for a low at 1.7820 at the start of New York trade. Dragged in both directions by GBP volatility, EURO rallied into large stops as well for a high print of 1.4482 before reversing; low prints in early New York at 1.4119 making a mess of balance sheets. Traders note that cross-spreaders have been hitting the non-USD crosses hard on the buy side suggesting that the volatility is not limited to only USD; the global economic slowdown affects everyone and the cross-rates are being hit as well suggesting a flight out of USD-based assets. Oil is off sharply as well today suggesting that more conflicting news is on the way but in my view, lower energy is not driving trade; panic is driving trade as late USD longs get squeezed. Look for the USD to continue all over the board the next few days.

 

 

GBP/USD Daily

 

Resistance 3: 1.8400

Resistance 2: 1.8130

Resistance 1: 1.7950

Latest New York: 1.7801

Support 1: 1.7680

Support 2: 1.7550

Support 3: 1.7420

 

Comments

Rate explodes to the upside and runs all bids out; falls back to open lower in New York. Buy dips is the preferred strategy in my view. Cross spreaders seen active on the sell side but volumes lighter. Rate two-way but firm on dips; traders note bids still absorbing offers on the breaks. Traders note stops mixed with offers above the market also. Major support has held last Friday, any weakness likely to be bought hard. Profit-taking bids continue as well. Hook reversal from the toolbox still valid. Price drop today likely over-extended on sympathy selling from EURO. Drop is drawing profit-taking bids suggesting the bottom is finally trying to form near-term. Short-covering rally may be over due to sharpness of the move. Likely an exhaustion drop. Close back above the 1.7780 area needed to take some of the pressure off.

 

Data due Tuesday: All times EASTERN (-4 GMT)

4:30am GBP CPI y/y

4:30am GBP Core CPI y/y

4:30am GBP DCLG HPI y/y

4:30am GBP RPI y/y

Tentative GBP BOE Inflation Letter

 

EURO/USD Daily

 

Resistance 3: 1.4550

Resistance 2: 1.4380

Resistance 1: 1.4250

Latest New York: 1.4117

Support 1: 1.4020

Support 2: 1.3900

Support 3: 1.3820/30

 

Comments

Rate rallies hard, some sympathy trade from GBP; lows likely in finally from last week. Bids are supporting on dips. Bounce out of the drop on better volume traders say, lots of stops from shorts seen overnight as well as panic bids. Two-way trade and whipsaw result in increased volatility. Stops Friday suggesting bottom-picking is still being tried by early longs. Traders report offers in size being absorbed. Traders suggesting that the rate is trading technically. Market is heavily short now so expect a rally. Rate continues to track Cable and vice-versa. Now that more stops are cleared a rotation higher is even more likely. US data this week likely to be unfriendly so be ready for more whipsaw.

 

Data due Tuesday: All times EASTERN (-4 GMT)

2:00am EUR German Final CPI m/m

5:00am EUR CPI y/y

5:00am EUR ZEW Economic Sentiment

5:00am EUR Core CPI y/y

5:00am EUR German ZEW Economic Sentiment

 

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