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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Focus Turning to Yen on Risk Aversion

Mon, Sep 29 2008, 13:22 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Focus Turning to Yen on Risk Aversion

Markets' focuses seem to be turning to the Japanese yen as risk aversion is back following European Government's actions on Fortis, Hypo Real Estate, B&B and Giltnir. US stock markets are set to open sharply lower despite the progress on TARP. Fortis bank was injected 11.2m Euro by governments of Belgium, Netherlands and Luxembourg after take over talk with BNP Paribas and ING broken down. German bank Hypo Real Estate Group will receive 35b euro in emergency funding from a group of GErman private banks and the government's after suffering heavy losses in mortgage lending in the US. Bradford & Bingley, the UK's largest mortgage lenders, become the second UK bank after Northern Rock to be nationalized and was seized by the government after credit crisis shut off funding and clients struggling to repay mortgage. Icelandic Central Bank acquired a 75% stake in Giltnir bank for 600m euro to avoid the bank to fail within weeks. Citigroup also accnounced that they will acquire the banking operations of Wachovia in a deal facilitated by the FDIC.

In short, the global financial crisis is widening and it seems that the problems are spreading over to Europe. Investors are deep alerted and sent the Asian and Europe stocks sharply lower today. US stock markets are also set to gap lower. The Japanese yen is benefited from risk aversion and surges broadly in crosses and could extend gains further depending on the development in US stocks.

Dollar remains firm against major rivals in early US session as markets are awaiting House approval of the finalized $700b TARP. In a press conference this morning, Bush urged lawmakers to pass the so called Emergency Financial Stabilization Act. He said the the bill would give the US government's to tools to stabilize the financial system and help the economy to return to its strength in the long run. Fed Chairman Bernanke said in a statement that he welcomed the package and look forward to 'swift passage' of the legislation. The plan is expected to pass House today and Senate by latest Oct 1.

Economic data released today saw US PCE core accelerated to 2.6% yoy in Aug. Headline PCE moderated slightly to 4.5% instead. Personal spending was flat versus consensus of 0.2% growth while income beak expectation by growing 0.5%. Eurozone sentiments were steadily bad in Sep. Economic sentiment dropped less than expected to 87.7 while consumer confidence was unchanged at -19. New Zealand Trade deficit came in narrower than expected at -750m in Aug. Japan retail sales rose more than expected by 0.7% yoy in Aug.

More on TARP

• USA: Deal Struck but Uncertainty Has Risen
• USD: What Does TARP Mean for FX?
• Usd Gains On Bailout Agreement
• Draft Got Released
• Financial Sector Woes Spreading To Europe As Modified US Bailout Plan Moves Forward
• Banks May Now Earn Interest on Required Reserves Thanks to U.S. Rescue Plan
• Financial Rescue Plan Wording Being Finalized
• U.S. Rescue Plan Finalized, $250 Billion in Funding to be Released Up Front (Update) (Update)
• The Bailout Plan's Modifications Spell Disaster For The U.S. Economy

SUMMARY OF THE "EMERGENCY ECONOMIC STABILIZATION ACT OF 2008"

I. Stabilizing the Economy

The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.

II. Homeownership Preservation

EESA requires the Treasury to modify troubled loans - many the result of predatory lending practices - wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

III. Taxpayer Protection

Taxpayers should not be expected to pay for Wall Street's mistakes. The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program from financial institutions.

IV. No Windfalls for Executives

Executives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses. In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits "golden parachutes" and requires that unearned bonuses be returned.

V. Strong Oversight

Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval). The Treasury must report on the use of the funds and the progress in addressing the crisis. EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner. It also establishes a special inspector general to protect against waste, fraud and abuse

Full 110 pages document

More Forex Technical Analysis Reports Here.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 193.83; (P) 194.83; (R1) 196.51; More

GBP/JPY's fall from 197.42 extended further to as low as 190.46 today and remains weak in early US session. At this point, intraday bias remains on the downside as long as 193.13 minor resistance holds. Further break of 189.74 support will confirm that rebound from 184.47 has already completed and will bring retest of this low. on the upside, above 193.13 will turn intraday outlook neutral first but another fall is still in favor after brief recovery.

In the bigger picture, whole down trend from 251.09 has resumed after corrective rebound from 192.60 was limited at 215.87 by 55 weeks EMA. Such decline is expected to extend further to 61.8% projection of 251.09 to 192.60 from 215.87 at 179.72 (close to 180 psychological support) first. While some more correction cannot be ruled out in near term, medium term outlook will remain bearish as long as 215.87 resistance holds.

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Published on  Mon, Sep 29 2008, 13:48 GMT