Daily Report: Dollar Sold off On Lehman Bankruptcy

Market Overview | Written by ActionForex.com | Sep 15 08 06:32 GMT |

Dollar gapped lower as the week starts and continued to be sold off on worsening in the financial crisis in US. Dollar opened sharply lower across the board on news that potential buyers Barclays and Bank of America rejected deals to save Lehman Brothers. Instead, Bank of America announced that it will acquire Merrill Lynch for $50 billions. Lehman later filed for Chapter 11 Bankruptcy which marks the first bankruptcy of a Wall street firm in nearly 20 years. Fed announced several initiatives to provide additional support to the financial markets to weather the impact from Lehman's bankruptcy. A group of banks are setting up a liquidity pool of 70 billion in addition to supplement Fed's liquidity facilities. More on Lehman: USA: Lehman Files for Bankruptcy Lehman Implodes, US Dollar Sinks Against Major Currencies Lehman Brothers Files Chapter 11 Bankruptcy, Merrill Sold to Bank of America Fed To Boost Lending Ahead of Lehman Bankruptcy Lehman's Latest Developments Spell Trouble for Carry Trades and US Dollar Wall Street Facing Crisis As Lehman set to Fall, Merrill Selling Itself Fed announces broadened collateral at the PDCF and TSLF Lehman Prepares Bankruptcy Papers as Barclays and Bank of America Walk Away While dollar is generally weak, yen is the major gainer so far on risk aversion. AUD/JPY, CAD/JPY and USD/JPY lost more than 2% so far. Dollar weakened against Euro, Sterling and Swissy but remains steady against Aussie and Canadian. Gold also surged sharply to above 785 level. Technically speaking, as mentioned in the weekly report, a short term top is in place in the greenback and today's price actions confirm this case. More downside should still be seen as the week goes. Looking ahead, Swiss combined PPI and retail sales and Eurozone labor cost will be released during the European session. US empire state manufacturing index and industrial production will be featured in the US session. Though, economic data will take a back seat today and market's focus will be on the development in the financial crisis and the stock markets' reaction. USD/JPY Daily Outlook Daily Pivots: (S1) 107.10; (P) 107.54; (R1) 108.36; More. USD/JPY gapped lower today and dived further to as low as 105.27 so far. Break of 105.52 low reaffirms the bearish view and indicates that fall from 110.66 has resumed. At this point, further decline is expected to 103.76 support. As discussed before, break of the medium term rising trend line with bearish divergence condition in daily MACD indicates that whole rebound from 95.77 has completed. Break of 103.76 will confirm this case and bring deeper decline. On the upside, though, above 107.97 resistance will invalidate the bearish view, indicating firstly that correction from 110.66 has completed, secondly, whole medium term rally from 95.77 is still in progress despite the brief break of trend line support. In such case, retest of 110.66 high should be seen first. In the bigger picture, the break of medium term trendline support (95.77 to 103.76) indicates that whole medium term rebound from 95.77 should have completed with at 110.66 with bearish divergence condition in daily MACD. Further break of 103.76 support will confirm this case. Also, note the three wave structure of the rise from 95.77 to 110.66 argues that it's merely a correction in the larger down trend. Hence, in such case, deeper medium term decline should be seen to retest this 95.77 low. On the upside, though, above 107.97 resistance will invalidate the bearish view, indicating firstly that correction from 110.66 has completed, secondly, whole medium term rally from 95.77 is still in progress despite the brief break of trend line support. In such case, retest of 110.66 high should be seen first. Forex News Digest Lehman Brothers Files Chapter 11 Bankruptcy, Merrill Sold to Bank of America Wall Street Facing Crisis As Lehman set to Fall, Merrill Selling Itself Australian Dollar Up Against U.S. Dollar After Wall Street Crisis Announced Yen Up Against U.S. Dollar After Lehman, Merrill Troubles Fed announces broadened collateral at the PDCF and TSLF Lehman Prepares Bankruptcy Papers as Barclays and Bank of America Walk Away Dollar Weakens Against Euro, Yen on Concern Lehman to File for Bankruptcy Australian, N.Z.