Euro Hits A 20 Day High As Doubts About Treasury Plan Creep Into The Markets

Daily Forex Fundamentals | Written by Global Forex Trading | Sep 22 08 10:03 GMT |

Top Stories Goldman Sachs and Morgan Stanley will change their status to bank holing companies, will accept deposits WAMU continues talks with buyers Nomura seeks to take over part of LEH operations Democrats begin to set out terms for Treasury proposal Australia, Germany and others join the short selling ban South African Thabo Mbeki will step down as country faces new elections ZAR soars on the news Markets relatively neutral awaiting details of the Treasury plan Dollar demand creates a rally against majors Oil at $105.00 holding firm Gold at $875 quiet ahead of rescue news. Overnight Eco GBP Rightmove -3.3% vs. -4.8% the month prior JPY All Industry 0.8% as expected AUD New Motor Sales -3.5% vs. -3.4% last month JPY Convenience Store Sales 5.3% vs. 11.7% month prior Event Risk on Tap CAD Retail Sales maker looks at 0.3% gain Price Action USD/JPY back to 106.00 as equities wobble and dollar weakens across the board AUD/USD steady at 8350 with little interest in Europe GBP/USD takes out 1.8400 reaching 26 day high as anti-dollar flows continue EUR/USD reaches 1.4600 as markets consider the fiscal stress of the Treasury plan Euro Hits a 20 Day High As Doubts About Treasury Plan Creep Into the Markets Although the details of the Treasury rescue plan have yet to be finalized traders spent the weekend contemplating the consequences of this policy move and came away with the conclusion that it is likely to be dollar negative. The massive infusion of additional US government debt - $ 1 Trillion or more by some analyst estimates - could further weaken the already fragile US fiscal position and may put considerable downward pressure on the greenback if foreign investors begin to shun US financial assets as a result. The EURUSD and GBPUSD hit 20 and 26 day highs as speculative flow once again began to move away from the buck. Part of the problem with Treasury's Paulson's plan is his request for a near dictatorial authority over the use and disbursement of the funds. Congress is unlikely to provide such broad executive power without any mechanism for oversight and furthermore will likely demand bailout measures for a score of other constituents that may complicate and perhaps even handicap the original intent of the proposal. Currency markets despise uncertainty, and for now uncertainly reigns supreme as everyone awaits the legislative response to Mr. Paulson's request. The net result is that until traders get more clarity on the details of the plan the euro will likely continue to strengthen simply as the easiest, most liquid anti-dollar proxy. With macro themes still dominating trade, economic news if there were any would probably take back stage once again. However, with only Canadian retail sales on the docket, North American is likely to be even more sensitive to every new story on CNBC and Bloomberg. For now US equity futures have bounced off the lows and EURUSD has stabilized at 1.4560. Do not be surprised however if the pair rallies later on in the day despite a decline in US equity prices as the familiar correlation of short DJIA short EURUSDbreaks down and the euro begins to trade on safe haven dynamics. FX Upcoming Currency GMT EST Release Expected Prior CAD 12:30 8:30 CAD Retail Sales (MoM) (JUL) 0.3% 0.5% CAD 12:30 8:30 CAD Retail Sales Less Autos (MoM) (JUL) 0.3% 1.4% Boris Schlossberg http://www.gftforex.com DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.