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Market Session Snap-Shot

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Asian Session − European Banking Worries Hit Euro

Wed, Oct 1 2008, 10:11 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Market Brief

The Usd massive gains were halted slightly in Asian session, as growing optimism regarding the second attempt for a Bailout and banking sector worries plagued the Eur. The FX market witnessed the steepest appreciation of the greenback against the Euro since 1999. When the dust settled, the EurUsd traded from 1.4420 down to 1.4011 (note that after the rescue plan was rejected by congress on Monday the pair had traded up to 1.4570). The massive Usd buying had a spillover effect most significantly witnessed in the Jpy, where even risk aversion buying couldn't keep the pair down, with the UsdJpy trading up to 106.50 Volatility is still the name of the game, with the Wall Street surging higher after Monday's 7% decline. The DJIA closed up 4.6% and S&P 5.27%. The Asian equity markets are trading higher on the positive momentum. However, global interbank interest rates have been climbing, despite the ECB, BoE and Fed all injecting plenty of overnight funds. On a positive fundamental note, the US consumer confidence in September rose to 59.8 vs. 55 exp. Should the US Congress pass the Bailout Plan in some form later this week, we expect the Usd to continue to be on the offensive.

Perhaps the strongest argument for the Usd strength is that while a Bailout plan in the US might be difficult to achieve, but it will get passed, it will be nearly impossible for something similar to occur in Europe . Yesterday saw trouble in European financial institutions increase, with Belgium and French governments extending credit and Irish governments guarantee deposits and debt of Irish banks. Unlike the US structure, the ECB has no mechanisms to respond to bank failures and would be hard pressed to develop a contingency plan should events worsen. While Trichet has been busy assisting the financial sectorss we still expect the ECB to hold rates steady at tomorrow's meeting.

Even the flow from risk aversion could not hide the fact that Japanese domestic economic conditions are deteriorating. After a rash of negative data on Tuesday, today's BoJ's quarterly Tankan survey for Q3 confirmed deterioration in business conditions. The large manufacturing index fell to -3 from 5, while the large non-manufacturing index dropped to 1 from 10. We expect that when financial markets right themselves and credit condition improve, the Jpy will suffer significantly as recession hits Japan.

It goes without saying that today's activity will remain volatile & uncertain. Participants will have one eye on equity markets and the other on the newswires. We will also be watching ADP for trading direction and indication for Fridays NFP.

Currency Tech

AUDUSD
R 3: 0.8380
R 2: 0.8348
R 1: 0.8097
CURRENT: 84.54
S 1: 0.7802
S 2: 0.7676
S 3: 0.7616

EURJPY
R 3: 155.81
R 2. 155.22
R 1: 151.36
CURRENT: 149.70
S 1: 148.50
S 2: 147.51
S 3: 147.04

USDSGD
R 3: 1.4542
R 2: 1.4478
R 1: 1.4394
CURRENT: 1.4336
S 1: 1.4238
S 2: 1.4184
S 3: 1.4054

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

Published on  Wed, Oct 1 2008, 10:18 GMT