• Home ::
• Technical ::
• Forex Strategy ::
• Daily Forex Strategy Briefing

• Send
• Print
• Add To
• Rss

Daily Forex Strategy Briefing

01537600-e596-42f3-b9fb-9a397cdaa689

0

0

Stocks and USD Gain on Hopes AIG Will Be Rescued

Wed, Sep 17 2008, 02:17 GMT
by Hans Nilsson

CMS Forex

Stocks and USD Gain on Hopes AIG Will Be Rescued

• The dollar gained against most key currencies Tuesday as the Federal Reserve kept interest rates unchanged and the US stock market rose on reports the Fed may help rescue American International Group Inc. from collapse. The yen fell as risk appetite rose and Japan’s August consumer sentiment dropped to a 26-year low. The Canadian dollar rose modestly and the Australian dollar pared earlier losses. Sterling fell after a failed attempt to penetrate resistance a 1.80.


• The EUR/USD declined today, pressured by the Fed’s rate decision. The pair was unable break resistance at 1.43 today after temporarily penetrating it yesterday. The pair is in a clearly defined downtrend and likely to test the 1.39-1.40 support again.

Financial and Economic News and Comments

US & Canada

• The US economy is expected to slow further, according to the qEcon Research/Globicus leading economic index. The leading index recovered modestly to -3.1 in August from -3.7 in July. The overall economy has held up relatively well despite a severer housing contraction and Wall Street turmoil. Some pundits said the US economy was in a good shape (supported by strong Q2 GDP) and would recover strongly. This view is not supported by our leading indicator, which shows further deceleration in US economic growth and no signs of an economic recovery yet. The coincident six-month smoothed growth rate declined to -1.6 in July from -1.2 in June, indicating the US economy is contracting. Although a recession is usually negative for the dollar, it does not always imply a falling dollar as exchange rates also depend on global economic growth. Our leading economic indexes for Europe and Japan also indicate economic weaknesses; thus, a US recession may not hurt the dollar.

• The US consumer-price index declined 0.1% m/m in August, exactly as the consensus expected and reversing a fraction of July’s 0.8% m/m increase, data from the Labor Department showed. The CPI rose 5.4% y/y, still near the highest since 1991. The CPI decline was due to energy prices, which fell 3.1% m/m in August, but still rose 27.2% y/y. The food and beverage prices were up 0.6% m/m in August, up 5.9% y/y. The core CPI, which excludes food and energy, increased 0.2% m/m in August, up 2.5% y/y. Excluding energy, the CPI was up 0.3% m/m in August, up 3.1% y/y. Real average hourly earnings increased 0.6% m/m in August but declined 2.2% y/y. Overall, the numbers indicate inflation remains the serious economic problem in the US.

• The Federal Reserve, putting concerns about inflation ahead of the current financial-market turmoil, unanimously kept its federal funds rate unchanged at 2.00%. While acknowledging that “strains in financial markets have increased significantly and labor markets have weakened further,” the Fed warned that “inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities.” “The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain,” the Fed statement said.


• The possible collapse of American International Group raised the prospect of billions of dollars in defaults on credit-default swaps. Treasury officials were working with Goldman Sachs and Morgan Stanley to line up bridge loans for AIG while it regrouped by selling some assets. Meanwhile, Goldman Sachs announced on Tuesday morning that its Q3 net income plunged 70% y/y.

Europe

• The euro-area inflation rate fell to 3.8% y/y, slowing for the first time in four months in August and the lowest since May, from 4.0% y/y in July, Eurostat said. Germany’s inflation slowed to 3.3 y/y in August from 3.5% y/y in July. UK inflation accelerated to 4.7% y/y in August, the fastest in at least 11 years.


• The ZEW German economic expectations index rose more than forecast to -41.1, indicating German investor confidence rose for a second month in September and to the highest level since April, from -55.5 in August, the ZEW Center for European Economic Research said. The current economic situation index unexpectedly jumped to -1 in September from -9.2 in August.

• Germany’s RWI institute cut its outlook for German 2009 economic growth to 0.7% from 1.5% as weaker export demand and inflation push Germany toward a recession.

Asia-Pacific

• Asian economies will grow at a slower-than-expected rate in 2008 and 2009 on weakening growth in the US, Europe and Japan as well as central banks’ policies to tame inflation, the Asian Development Bank said. Asia excluding Japan will expand 7.5% in 2008, less than an April estimate of 7.6%, and the region will expand 7.2% in 2009, the ADB reported.


• The Japanese consumer sentiment index dropped to 30.1 in August, indicating Japan’s consumer confidence fell to the lowest since the records began in 1982, from 31.4 in July, the Cabinet Office said.


• Lehman Brothers Japan Inc. and Lehman Brothers Holdings Japan Inc. filed for bankruptcy in Tokyo District Court with about ¥4 trillion ($38 billion) in combined liabilities, Teikoku Databank Ltd. said. The bankruptcy is Japan’s second-biggest in the postwar period, behind Kyoei Life Insurance Co.’s failure in 2000.

FX Strategy Update

• Download Full Daily Forex Strategy Briefing

Published on  Wed, Sep 17 2008, 02:51 GMT