Sep 16, 2011

Forex Crunch Yet more Band-Aids for Europe

Forex Crunch Yet more Band-Aids for Europe

Yet more Band-Aids for Europe

Posted: 16 Sep 2011 12:12 AM PDT

Yesterday's decision by the major central banks to expand dollar liquidity provision operations has yet another eerie parallel with 2008, on the 3rd anniversary of Lehman's downfall. On the 18th September 2008 central banks announced a coordinated expansion of dollar liquidity to ease similar funding pressures in the wholesale market. This was ramped up in the following month and was the last co-ordinated action on liquidity we have seen from central banks. Since then, most central banks have been absorbed with their own specific liquidity issues, as well as separate measures to give their economies a kick start (invariably quantitative easing). Given the greater recourse to the ECB's dollar funding facility recently, together with the fact that market rates had moved through the price of ECB dollar funding (at 1.10%), this move does not come as a great surprise.

Nevertheless, it is significant that central banks are prepared to act together, suggesting that they now share a more common purpose, rather than being engrossed in their own circumstances. The euro's initial response was positive, as was the reaction of battered bank shares. Traders are conscious that being short euros ahead of today's Ecofin meeting might not be a good idea, as it is just possible something more substantive may result, especially if America's Tiny Tim convinces Europe's elite to implement his TARP template. That said, this action on dollar funding will be more effective in putting a cap on funding costs rather than bringing them down from the currently elevated levels. The premium for borrowing in dollars via euros has fallen to around 80bp, which takes it back to levels last seen five weeks ago. In other words, the major central banks have merely treated the symptom, rather than the cause. Should the Ecofin meeting produce yet more dithering, it is likely that euro-selling will resume next week.

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EUR/USD Sep. 16 – Loses Important Support After Dollar Liquidity Euphoria Fades

Posted: 16 Sep 2011 12:07 AM PDT

Euro dollar is slowly testing lower ground below critical support and under the former uptrend line. The euphoria from the joint announcement by 5 central banks to provide dollar liquidity to struggling European banks is slowly fading. The week ends with two major US releases and also the finance ministers meeting. How close is the Greek default?

Here's a quick update on technicals, fundamentals and what's going on in the markets.

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Forex Daily Outlook – September 16 2011

Posted: 15 Sep 2011 02:00 PM PDT

We end this week with TIC Long-Term Purchases in the US and ECOFIN Meetings in Europe as the major events this day. Here is an outlook on the market-movers awaiting us.

In the US, Prelim University of Michigan (UoM) Consumer Sentiment, Survey (around 500 consumers) to value the present and upcoming financial conditions, expected to rise from 55.7 points on August to 56.4 points this time. Meanwhile the Prelim UoM Inflation Expectations is forecasted to remain 3.5%, similar to August report.

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Is The Dollar Liquidity Move a Preparation for the Greek Default?

Posted: 15 Sep 2011 07:27 AM PDT

The dramatic announcement by 5 major central banks about providing dollar liquidity for European banks could precede a bigger announcement about an official Greek default.

The liquidity move, similar to the one made after Lehman, could help make the default more orderly, and prevent a Lehman like turmoil. Here are 3 reasons why this move could be a preparation for a Greek default:

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USD/JPY: Trading the University of Michigan Consumer Sentiment Index

Posted: 15 Sep 2011 07:05 AM PDT

The University of  Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. An increase in consumer confidence is a positive sign about the health of the economy and can help strengthen the US dollar.

Here are all the details, and 5 possible outcomes for USD/JPY.

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EUR/USD Breaks Above Channel On Dollar Liquidity Annoucnement

Posted: 15 Sep 2011 06:11 AM PDT

EUR/USD broke above the uptrend channel that characterized it throughout the week and above critical resistance at 1.3838. This comes after 5 central banks coordinated to supply dollar liquidity to European banks – the Federal Reserve is helping the ECB.

The ECB and the Federal Reserve address the dollar funding crisis that has weighed heavily on European banks. This came after European officials dismissed comments made by the head of the IMF Christine Lagarde regarding an urgent need to recapitalize European banks.

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