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Asian Session − US Treasury Bails Out AIG

Wed, Sep 17 2008, 08:13 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Market Brief

The Usd was mixed in the Asian session, as developments in the financial markets are coming fast and furious, keeping the participants on their toes. Risk aversion continued to dominate market trading behaviors. The EurUsd was range-bound most of the session, before gaining monument trading up to 1.4249, while the UsdJpy, in choppy trading, rose from 104.51 to 106.71. Crude prices reversed their downward slide trading up 3.58% to $94.42bll. VIX index jumped to 30.30, reflecting the uncertainly surrounding the financial markets. Wall Street was able to rally back from earlier declines to close above 11,000, but in Asia only the Nikkei has been able to hold on to the positive momentum.

The big news overnight was the bailout of the insurer AIG. The US Treasury, with the Feds with "full support", will lend up to $85b to insure the financial giant doesn't fail. The deal is basically a straight forward nationalization, with the US government receiving 79% equity stake and AIG will sell assets to repay any money drawn from the lending facility. The proverbial line in the sand has been drawn, with AIG being on the right side and Lehman on the wrong side….clarifying the question "are there banks, too big to fail"?

Earlier, the FOMC voted to keep rates unchanged at 2.00% (as we had expected). The market had gotten slightly ahead of itself in calling for a 25bp cut. However, if turbulence in the financial markets continue, growth continues to weaken and inflation falls we should see lower rates in 2008.

In Japan, the BoJ unanimously voted to keep rates unchanged at 0.50%, as was universally expected. The statement from the Bank (overall unchanged from the last release) retained the wording "sluggish" growth (citing exports) as the core to economic assessment, but the mid term outlook was more upbeat with gradual return in growth.

In Australia, the RBA minutes to the September meeting (when the bank surprised the market with 25bp cut to 7.00%) were released. The overall tone was balanced which suggests to us another 125bp in cuts (75bp in 2008). It's important to note that since the meeting was two weeks ago, the macro environment looks very different, with inflation looking more benign and the credit tightening might force the RBAs hand in October rather than in November as expected.

Currency Tech

AUDUSD
R 3: 0.8300
R 2: 0.8263
R 1: 0.8164
CURRENT: 0.8030
S 1: 0.7675
S 2: 0.7616
S 3: 0.7560

EURJPY
R 3: 157.01
R 2: 152.92
R 1: 151.57
CURRENT: 150.63
S 1: 147.01
S 2: 146.21
S 3: 145.75

USDSGD
R 3: 1.4542
R 2: 1.4478
R 1: 1.4394
CURRENT: 1.4340
S 1: 1.4234
S 2: 1.4142
S 3: 1.4116

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

Published on  Wed, Sep 17 2008, 08:51 GMT