Dollar Declines Against Most Majors

Daily Forex Fundamentals | Written by TheLFB-Forex.com | Sep 17 08 03:58 GMT |

Overall, the dollar declined in the Asian session as the market sees the Fed cutting at the upcoming meetings. Since the new session started, the dollar declined against every major pair, except the yen. The Euro (Eur/Usd) fell 190 pips, closing just above TheLFB S1 (1.4080) yesterday. The pair traded in a 100-pips range in the overnight session, but as the U.S. session progressed, the pair started moving lower as rumors about the Fed's intervention to save AIG appeared. Later, those rumors were confirmed. In the Asian session, the pair gained 100 pips. The Pound (Gbp/Usd) declined 180 pips yesterday, bouncing off the 20-day moving average. The pair moved between the neutral pivot point (1.7960) and TheLFB S1 (1.7790) yesterday, trading very choppy. The pound's behavior was probably influenced by the busy U.K. calendar from the last two days, together with the FOMC decision. The Aussie (Aud/Usd) made a new low for the time being yesterday. However, the move came on a very strong volume. The aussie's volatility increased dramatically lately, something that can be interpreted because of the carry trading unwinding. In the Asian session, the aussie advanced 80 pips, and is now hovering under TheLFB R1 (0.8060). The Cad (Usd/Cad) moved only in a predefined range yesterday, unable to pull any moves. During the overnight session, the pair moved in a 35 pips range, something that happens very often, while in the U.S. session the cad still moved in a range, only a few pips wider this time. Today, in the Asian session, the pair fell 45 pips and is now testing the support area of the range. The Swissy (Usd/Chf) gained yesterday 125 pips, after it bounced from the 20-day moving average, for the second day in a row. The swissy traded between TheLFB S1 (1.1045) and R1 (1.1250), making the moves were very unstable. In the Asian session, the pair lost some pips, but did not manage to break under the neutral pivot point (1.1180). The Yen (Usd/Yen) managed to close higher, reflecting the activity on the Wall Street. Yesterday, in the overnight session the yen was trading in the red, however, the pair reversed the selling activity once with the major U.S. indexes. The AIG bailout by the Fed triggered this reaction. Today, in the Asian session, the pair advanced another 90 pips. In the early European session, the Bank of Japan is expected to announce the interest rate. Asian shares up on AIG bailout Current Futures: CAC -80.00, DAX -100.00, FTSE -197.00 Asian trade: Asian shares are thriving after the Fed announced it would lend $85 billion for a period of two years to shore up AIG's balance sheet. According to some sources, losses from a possible AIG collapse would have totaled $180 billion, probably dragging other financial entities near bankruptcy, too. This year alone, AIG is off by 70%. The news made the U.S. major indexes close in the positive territory, despite that during most of the trading session the indexes hovered under the neutral line. Over the same time, the markets waited for a 25 basis point cut from the Fed, even though, a week ago the markets would have said, with a staggering majority, that the Fed's next move would be a hike. However, the FOMC's decision was to hold at the current 2.00%. In the statement, that closely follows the interest rate decision; the bank said the economic conditions had deteriorated in the last period. The news that AIG will be saved made the financials post gains for the first time in the last few trading sessions. At the same time, it helped the Asian markets bounce from multi-year bottoms as well as from the steepest declines in the last eight months. The major Asian indexes are down 29% this year, as measured by the MSCI Asia Pacific index. Nikkei gained 241.06 points (2.08%) to 11,850.78. The Australian S&P/Asx is floating near the neutral line, slipping 1.30 points (0.03%) to 4,749.50. Crude oil is advancing for the first time in three days, after the economic outlook had slightly improved. Crude oil for October delivery gained $3.08 (3.38%) to $94.23. Gold rose in the overnight session hedging the dollar's decline. Bullion for immediate delivery advanced $4.30 (0.55%) to $784.80. Previous Wall Street trade: In making a unanimous decision to hold rates steady at today's meeting, the Fed has taken the stance that a further reduction in borrowing costs is not needed at this time to help the current situation in financial markets. What is needed is liquidity to help support immediate funding needs, and that being provided. It was reported by Bloomberg that the N.Y. Fed has re-considered its stance on lending to troubled insurance giant AIG. In reaction to the Fed's rate decision, Bill Gross of PIMCO said "clearly we're in a deflationary environment and all asset classes, exemplified by oil in recent weeks, and that has the potential to feed into the real economy with significantly negative effects." While there is no doubt that risks to the real economy exist, those risks are not likely to be mitigated by lowering the overnight rate by 25 basis points although it is apparent that any rate increases will not be forthcoming in the near future. The government and the Fed do seem to be making decisions about which firms can fail and which must be supported. Lehman was allowed to fail, but Fannie and Freddie were not. Apparently, AIG must also be allowed to survive. One might ask on what basis such decisions are being made and it would seem that the degree to which failure would elicit the most widespread damage seems to be the overriding concern. The Fed will continue to do its job as lender of last resort and we believe the Fed did the right thing at this time by holding rates steady. Previous European trade: European shares extended the losses from yesterday, after news that Lehman filed for bankruptcy caused the major indexes take massive losses Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.