Yesterday we saw the insolvency of the investment bank Lehman Brothers and today the last minute rescue of the insurer AIG. This morning Eurogroup Chairman Juncker says that the crisis of the financial markets is not finished yet but doesn’t threaten to plunge Europe into a recession. He also added that the euro zone financial system is stronger than that in the US.
Market review
The USD gained against most currencies after the Federal Reserve held interest rates steady at 2.0 %. The USD was very volatile at the time, after the Fed statement because some investors hoped for a rate cut. The EUR/USD decreased 0.9 % and closed at 1.4132. Against the GBP the USD rose 0.4 % and versus the JPY rose 1.12 %, too. In the early Wednesday session the USD got a further boost after the Federal Reserve rescued the insurer AIG, reducing fears about a financial system crisis. The Fed said it would lend up to $85 billion to AIG in a two year plan to save the insurer from the bankruptcy.
The Canadian Financial Minister Jim Flaherty said on Tuesday he has not adjusted Canada’s growth projection, despite of the trouble on the US financial markets. The CAD reacted barely and closed at 1.0696, just 4 Pips up from the opening. In Great Britain the CPI surged to a fresh record high of 4.7 % from 4.4 % in July because food prices rose to a record pace of 14.5 %. Furthermore, the core measure of inflation inched higher to 2.0 % from 1.9 % in July, which suggests that prices pressure could strengthen over the coming month. The GBP/USD dropped down 0.7 % at 1.7865.
Credit analysts and primary market sources say that Samurai bonds (outstanding $1.85 bln) issued by Lehman Brothers have effectively fallen into default. The last Samurai default occurred in 2002, when Argentina defaulted on its Samurai bonds. Even Societe Generale and Deutsche Bank have decided to postpone the launch of Samurai bonds this week, partly because investors have fears about investing in these bonds issued by financial institutions.
USD/JPY
Yesterday the USD/JPY touched once the established support level at 103.93 and rebounded back in the old trend channel. This impulse might lead the pair in the cannel with a resistance level at 108.49.
EUR/USD
After reaching its all-time high the EUR/USD came back. Especially in August the currency pair traded in a sharp downward trend channel. At the end of last week the EUR rebounded and now is trading on the upper side of the channel, which might be a sign for further losses. But the MACD shows the opposite with its hard increase.
