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Markets lower on worries the Auto bailout may not pass.

Thu, Dec 11 2008, 23:14 GMT
by James Whyte

ForexAmericas

In the U.S., stock markets finished lower as worries mounted that the Auto bailout may not pass the Senate.  Stocks were led lower by financials as JP Morgan’s Jamie Dimon indicated in an interview that 2009 was going to continue to be tough, and US Bancorp indicated they still had a lot of bad loans to deal with.  There was also some profit taking after recent rallies as participants were reminded that the U.S. still has plenty of problems. The U.S. Dollar Index fell 2.1% today as the U.S. Trade Balance widened and unemployment claims rose higher than expected for the week.  The Canadian Trade Balance, in comparison, was better than expected and sent the Canadian Dollar on a rally, especially against the USD.  The Dollar showed weakness overall, falling against the Pound, Yen, and more markedly against the Euro.  ECB’s Stark indicated today the Board’s reluctance to continue cutting rates aggressively.  This made for a strong break of Euro’s recent resistance of 1.3080.  Oil finished up 10% as OPEC’s meeting next week draws closer. 

Our Focus Today:

EUR:  Euro broke through the 1.3080 resistance convincingly.  We touched 1.3400 before retracing to 1.3305, and believe that is enough to continue higher, with next resistance of 1.3525 in sight.  A break of this level should see us approach 1.3745, which is the 38.2% retracement from July’s high of 1.6035 to October’s low of 1.2745.  In our view, if Europe is not easing, it’s a short term buy, but will be a longer term sell if they are seen lagging behind the rest of the G-7. 

YEN:  Dollar Yen continued its track lower as we predicted yesterday, and didn’t even reach the low 93’s,  We will stay short looking to break the 90.88 level on approach to the psychological 90.00.  Rallies should be contained to 92.30.  Also as mentioned yesterday, we sold GBPYEN in the mid 138’s and managed to capture almost 200 pips before closing a profit. 

GBP:  Sterling recovered against the Dollar on the Dollar’s own weakness, not because Cable’s suddenly a buy.  We retested Dec 2’s high of 1.5075-80, and the pair looks bid at the end of NY day around 1.5035.  We do not see it breaking 1.5080, and would short it ahead of that.

CAD:  With Canadian Trade Balance coming in much better than expected (and the U.S. TB much worse), and considering everyone was probably long USDCAD (including Yours Truly), we had a bit of a collapse in NY morning, but by day’s end had recovered 200 pips.  With oil continuing higher, we see renewed interest in commodity currencies so we could see further Canadian strength.  We will sit on the sidelines for now in the CAD.

Published on  Thu, Dec 11 2008, 23:17 GMT