Usd Recovers on Talks Lehman will be Purchased, Oil Drops

Daily Forex Fundamentals | Written by AC-Markets | Aug 22 08 22:27 GMT |

The Usd regained momentum in today's trading session, based on weak economic data out of Europe as well as major news in the financial sector. The EurUsd fell over 120 pips to the high 1.47 level, while the UsdJpy rose sharply the low 110 price. The GbpUsd declined substantially trading with a 1.85 handle, mostly due to the GDP figure which was released today. Equity markets rallied strong in the US and Europe, after a week of losses stemming from higher oil prices. Commodities declined across the board with oil leading the way down 6% from yesterday's close at 114, in addition, gold fell 5% to 827. Bond yields were higher by 11bps on the 2yr treasury, which is signaled a strong increase in risk appetite from the bearish sentiment Traders have held since the early part of the week.

UK GDP was flat at 0.0% vs. the 0.1% exp. teetering on a negative reading may suggest that the economy is heading for a recession. If so, investors should expect to see additional losses in the cable as the central bank will have to lower rates to generate growth. Several other data points came in negative and lower than estimates, particularly exports which were released at -0.5% vs. 0.4%. We maintain our bearish outlook, with trading range between 1.86-1.82 in the near-term. In the Eurozone, industrial new orders came in better than expected at -0.3% vs. the consensus figure of -1.1%. . While the data beat expectations, both the actual and projected figures were negative, which serves as insight to how dismal the economic outlook is for the region. Our desks expects the EurUsd to extend its recent decline to levels closer to 1.40 by year-end, largely due in part to the contraction in growth most of the region is likely to experience.

The market was submerged with a new sense of optimism regarding the timeline the US will need to recover from the recent downturn. Korea Development Bank is in talks to purchase Lehman Brothers, which provided investors with major relief regarding the state financial institutions in the US. Shares in Lehman Brothers surged on the news, as this transaction shows there are still buyers who see relative value in some of the ailing banks. This also removes pressure from the Fed, as they are closely monitoring Freddie and Fannie for the possibility of the banks to fail. These factors contribute to the probability in which the Fed will raise rates next meeting. Bernanke spoke at a forum in Jackson Hole, WY, in which he addressed both his concerns growth and dollar strength. The FOMC is scheduled next week, and we may be able to extract more information as to what the central bank's outlook is for the US economy.

AC Markets
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