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After a busy week of trading, the US dollar finished the week lower as outlook of more interference by the US government in the monetary markets supplied an increase to carry trades. Undeniably, by the fed funds rate positioning at 2.00 %, the US dollar is basically a low-yielding currency similar to the Japanese yen. Whilst there is no sketch situated in stone quite yet, US Treasury Secretary Henry Paulson stated throughout a speech on Friday that the Treasury might increase their mortgage-backed security (MBS) buying program revealed previously in the month in an effort to get rid of poisonous debt from the balance sheets of monetary organizations. In addition, Mr. Paulson explained that Fannie Mae and Freddie Mac would increase their MBS buys, and that an enduring plan might probably be produced throughout the weekend to deal with the stresses in the monetary markets.
How was the market’s reaction? Buy all things related to risk including oil, stocks, and the Japanese yen crosses, whilst selling “safe-haven” possessions such as US and European government bonds, the US dollar, and gold futures. Looking forward, it looks like that there is still an enough quantity of bearish possibility for the US dollar. As said by the newest CFTC Commitment of Traders (COT) report for the week finished September 16, placing grew more and more bearish on EUR/USD and as a contrarian sign, the data indicates probable growth for the pair. In contrast, the huge sell-off in Treasuries as well led fed fund futures to move to only price in a 28 % possibility of a 25bp cut by the Federal Reserve on October 29, compared to 82 % on Thursday. Nonetheless, by European Central Bank interest rates a firm 225bps above than that of the US at 4.25 %, these gaps have hold EUR/USD potency as the pair keeps on trading in a gigantic variety of 1.42 - 1.45.
There is going to be important event risk at hand in approaching days. Predominantly, traders must keep their eyes on an statement on Sunday from US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke because they are anticipated to reveal information for an arrangement to take mortgage-related debts from monetary organizations that is going to cost hundreds of billions of dollars. This kind of news could be valuable for carry trades and unhelpful for low-yielding currencies, and with Mr. Paulson and Mr. Bernanke both planned to speak several times throughout the week, instability should remain high. In economic news, US Existing Home Sales and Durable Goods Orders are both expected fall negative whilst Q2 GDP is not anticipated to be amended from 3.3 %.
16:11
Posted on Sep-21-2008
