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Daily Forex Commentary

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US Treasury and the Fed saved the World…

Mon, Sep 8 2008, 06:26 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

And so the U.S. Treasury and the Federal Reserve managed to save the world once again. This Sunday they announced a bailout of the two mortgage giants Fannie Mae and Freddie Mac, which own or guarantee almost half of the entire $12 trillion in outstanding mortgage debt in the US. Treasury Secretary Henry Paulson and FHFA Director James Lockhart argued that the US economy and the financial markets will not recover until the housing correction is in the past. In addition, Paulson and Lockhart argued that Fannie and Freddie are two special cases and it would be devastating to the economy if they were not kept floating. There is no doubt that this will be viewed positive by the market and positive for FX carry in the short-term. Even though we argued that EURCHF would reach sub-155 levels just a few days ago, the actions taken by the U.S. Treasury and the Federal Reserve changes this picture quite drastically. A lot of the risk-aversion we have witnessed in the last two weeks will most likely fade in the shortterm and this will prove positive for highyielders (AUD, NZD) and the funding currencies (CHF and JPY) will be sold once again. Overall, this will by the market be viewed as positive for growth, not just in the US, but indeed in the world as well. In the short-term our commodity analysts expect that commodities will receive a boost and this will not be all that positive to the US trade balance and hence the dollar. The euro is expected to gain versus the dollar on the renewed growth optimism, which means that we in the short-term expect EURUSD to edge higher. However, we cannot stop asking ourselves the following question: “How positive can it actually be when it is that bad that the only solution to save the financial sector in the US (and in the world?) is a government bailout?”. Hmmmm…

Emerging Markets

By the Emerging Markets Team

President Bush decision to save Fannie Mae and Freddie Mac has been very positive towards the Asian equity markets and risk appetite in general. Therefore the decision should also be positive for emerging markets short term. Looking at FX the decision has been negative for dollar against euro. Thus dollar related currencies as BRL, ARS, and MXN after 1½ months with gains now experience a negative day. On the other hand euro related currencies as HUF, PLN and RON are gaining.
However we still like the dollar related currencies more than the euro related currencies. We are considering opening a position in ISK (buying ISK) and considering closing our position in ZAR (selling ZAR) because of the credit friendly decision from President Bush. However we keep our positions today, because we forecast the positive sentiment to calm a little bit down. This week we look forward to a lot of important data from EM. Today we start with CPI from the Czech Republic 9 am.

Today’s Key Events

• 09:00 Consumer Prices, CZK

• 10:30 Producer Prices, GBP

• 13:00 ECB’s Stark speaks, EUR

• 16:30 ECB’s Tumpel-Gugerell speaks, EUR

• 21:00 Consumer Credits, USD

• 01:00 ECB’s Gonzalez-Paramo speaks, EUR

• 01:01 RICS House Prices Balance, GBP

• 03:30 Retail Sales, AUD

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Published on  Mon, Sep 8 2008, 06:32 GMT