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European and US summary

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USD Rebounds on Govt Action

Sun, Sep 21 2008, 21:26 GMT
by Korman Tam

Forexnews.com

9/18/2008 11:00 PM: EUR/$..1.4222 $/JPY..106.74 GBP/$..1.8054 $/CHF..1.1156 AUD/$..0.8064 $/CAD..1.0634

USD Rebounds on Govt Action

The dollar edged higher in early Friday trading, rising above the 106-figure versus the yen and pushing the euro lower toward the 1.42-region. A relief rally in US equity bourses reversed earlier losses, with the Dow Jones Industrial Average closing the Thursday session 3.86% higher and the Nasdaq up by 4.78%. The advance in the greenback and stocks was prompted by discussions for the creation of a government-sponsored entity that would remove “the illiquid assets on bank balance sheets that are the underlying source of the current stresses in financial institutions and financial markets”. In doing so, the government aims to restore confidence in the recently battered financial industry following the string of failures and halt any additional fallout on the already slumping economy.

Global central banks announced coordinated efforts to pump massive amounts of liquidity into the financial system to alleviate “continued elevated pressures in the US dollar short-term funding markets”. The BoC, BoE, ECB, SNB, BoJ and Federal Reserve increased their swap lines to provide improved liquidity in both term and overnight operations by more than $180 billion.

The US economic reports released on Thursday included weekly jobless claims, which jumped to 455k from 445k in the previous week, the August leading indicators and the September Philadelphia Fed survey. The August leading indicators index came in at -0.5%, improving from -0.7% from July while the Philadelphia Fed business survey unexpectedly increased to 3.8 versus -12.7 in August. There are no data releases slated for the Friday session with market movements largely dictated by any new revelations over the government’s ongoing efforts to resolve the current crisis and turmoil in the financial markets.

We expect the current volatility to continue over the coming weeks as the stability of US banks remain closely scrutinized and lingering questions of which financial institution is next to fall. Further, we look for crude oil to continue to decline amid fears that the series of failures by US financial institutions will have widespread affects on the global economy and temper demand for energy. Our near-term outlook for crude oil is for continued decline toward the $85 per barrel level.

Published on  Sun, Sep 21 2008, 21:27 GMT