Dollar Falls As Credit Crisis Deepens

Daily Forex Fundamentals | Written by CMS Forex | Sep 18 08 01:17 GMT |

The dollar fell against most key currencies Wednesday as inter-bank lending seized up. Yesterday's US announcement of an emergency rescue of American International Group Inc. (AIG) with an $85 billion bridge loan signals US intensifing concerns that a collapse could jeopadize the financial system. The TED spread rose to the highest level since the 1987 stock-market crash as investors fled to the relative safety of treasury and gold. The AUD/USD fell as the global credit crisis intensified. The high-yielding Australian dollar suffered from increased risk aversion as investors unwound riskier assets. The aussie has been falling for eight straight weeks against the dollar and has been declining for nine consecutive weeks against the yen. There is strong support at 0.78 and 0.75 areas. Financial and Economic News and Comments US & Canada US home construction plummeted to the lowest level in 17 years. US housing starts tumbled 6.2% m/m in August to a seasonally adjusted 895,000 annual rate, the Commerce Department said, well below the consensus expected 950,000 rate. Housing starts dropped 33.1% y/y. Most of the decline was due to multipleunit starts, which fell 15.1% m/m. Single-family starts were down 1.9% m/m in August, down 34.9% y/y. Housing starts fell in the Northeast, Midwest, and South but increased in the West. US new building permits fell 8.9% m/m in August to an 854,000 annual rate, versus the consensus expected 925,000 rate. Single-family permits were down 5.1% m/m in August, down 40.3% y/y. Mortgage refinance applications spiked 88.1% last week, to the highest level since May, with the average refi loan size surging 12.6%, the Mortgage Bankers Association reported. Today's housing figures show a continued deterioration in the US housing market. The number of homes under construction is likely to fall through the end of the year and national average home prices are likely to drop further by mid-2009. The US current-account deficit rose to $183.1 billion (preliminary) in Q2 2008 from $175.6 billion (revised) in Q1, the Commerce Department said. The rise was due to a decline in the surplus on income and an increase in the deficit on goods. The Q2 surplus on income declined to $27.3 billion from $33.2 billion in Q1. The Q2 deficit on goods increased to $216.3 billion from $211.0 billion in Q1. In contrast, the surplus on services rose to $35.8 billion from Q1's $33.9 billion. Europe The UK jobless claimant count rose 32,500 to 904,900 in August, indicating UK unemployment jumped the most since December 1992, the Office for National Statistics said. The claimant count jobless rate rose to 2.8% in August from July's 2.7%. The unemployment rate, as measured by the International Labour Organization, was 5.5% for the three months to July, up 0.2 over both the previous quarter and over the year. The number of unemployed people increased 81,000 over the quarter and 72,000 over the year, to reach 1.72 million. The figures indicate the UK labor market is deteriorating at a rapid rate and the UK economy is heading toward a recession. The Bank of England Monetary Policy Committee voted 8-1 on September 4 to keep interest rates unchanged, according to BOE minutes released today. Lloyds, the UK's biggest provider of checking accounts, is in 'advanced talks' to buy UK mortgage lender HBOS, Edinburgh-based HBOS said. Asia-Pacific Australia's Westpac leading economic index rose to 0.2% m/m in July after increasing 0.1% m/m in June, Westpac reported. Annually, the index was 3.7% in July following June's revised 4.0% growth, below the longterm trend of 4.2%, and the annualized growth rate of the coincident index was 1.4%, also below trend. The report read: 'These developments in the Index highlight the puzzle for the Australian economy. Growth is clearly slowing and even the revised Index read is consistent with that message. But the sheer dominance of the mining sector softens that message. Without the boost to profits and productivity from the mining sector in particular, growth in the Index would have been around 2% and prospects for the economy would be decidedly bleaker.' Overall, the LEI points to decelerating Australian economic growth with a risk for a recession. FX Strategy Update EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY Primary Trend Negative Neutral Negative Neutral Negative Neutral Neutral Secondary Trend Negative Negative Negative Positive Positive Negative Neutral Outlook Negative Negative Negative Positive Positive Negative Negative Action Sell Sell Sell None None None None Current 1.4291 104.25 1.8132 1.1034 1.0725 0.7836 149.11 Start Position 1.5312 109.45 1.9790 N/A N/A N/A N/A Objective N/A N/A N/A N/A N/A N/A N/A Stop 1.4840 111.90 1.8620 N/A N/A N/A N/A Support 1.3900 104.00 1.7900 1.1000 1.0300 0.7800 148.00 1.3500 101.00 1.7500 1.0600 1.0100 0.7500 144.00 Resistance 1.4300 108.50 1.8500 1.1400 1.0800 0.8500 154.00 1.4700 110.50 1.8700 1.1500 1.1000 0.9000 159.00 Hans Nilsson Capital Market Services, L.L.C. www.cmsfx.com ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. 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