EUR/USD Falls On Increased European Recessionary Risk

Daily Forex Fundamentals | Written by CMS Forex | Sep 24 08 01:15 GMT |

The dollar was mixed in NY trading Tuesday as US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke warned the US economy could jeopardize unless Congress quickly approves the administration's $700 billion financial rescue plan. Crude oil plunged and US stocks fell. The euro declined for the first day in five after eurozone purchasing managers' indexes fell to recessionary levels. The Australian dollar, unable to penetrate resistance at 0.85 yesterday, fell today as the world economy cools. The pound and Canadian dollar were little changed, near important technical levels. The USD/JPY slipped for a second day pressured by the fate of the administration's rescue package. The pair has been trading in tandem with the US equity market. There are resistances in the 108-area and support in the 104-area. Financial and Economic News and Comments US & Canada US home prices fell a seasonally-adjusted 0.6% m/m in July, with the sharpest price declines in New England and the mid-Atlantic region, the Office of Federal Housing Enterprise Oversight (OFHEO) reported. July house prices dropped 5.3% y/y. The Richmond Fed manufacturing index declined to -18 in September from -16 in August, the Federal Reserve Bank of Richmond reported. Among the index's components, shipments fell to -16 from -13, new orders index edged down to -23 from -22 and the jobs index slipped to -13 from -12. Overall, the figures indicate manufacturing contraction in the central Atlantic region persisted in September with manufacturers' optimism waning. US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke urged Congress to quickly pass a $700 billion rescue plan for financial institutions and avoid severe spillover effects on the US economy. Paulson cautioned lawmakers against letting the plan get bogged down in a debate over unnecessary additions. 'Over these past days, it has become clear that there is bipartisan consensus for an urgent legislative solution. We need to build upon this spirit to enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don't have broad support,' Paulson said in prepared remarks to the Senate Banking Committee. Fed Chairman Bernanke, joining Treasury Secretary Henry Paulson in urging Congress for swift action, said the US economy will contract if markets do not return to normal. 'I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,' Bernanke told the Senate Banking Committee. He also said the Treasury Department should buy illiquid assets at 'hold-to-maturity' values instead of at discounted 'fire-sale' prices. Canada's consumer-price inflation rose 3.5% y/y in August, the biggest rise since March 2003, Statistics Canada reported. August's CPI fell 0.2% m/m. Europe Europe's manufacturing and service industries contracted at the fastest rate in almost seven years in September. Royal Bank of Scotland Group Plc's composite index, based on a survey of purchasing managers by Markit Economics, fell more than expected to 47.0 in September, the lowest since November 2001, from 48.2 in August. A reading below 50 indicates contraction. The manufacturing index fell to 45.3 in September from 47.6 in August, while the services index slid to 48.2 from 48.5, according to Markit Economics. Eurozone industrial new orders unexpectedly gained 1.6% y/y in July, following a revised 7.2% y/y drop in June, Eurostat reported. The largest gains were seen in chemicals and chemical product orders, which jumped 7.0% y/y in July. Orders for basic metals rose 4.9% y/y, while transport equipment orders increased 4.8% y/y. Industrial new orders unexpected rebounded 1.0% m/m in July following a revised 0.5% m/m decline in June. Germany's services sector contracted in September for the first time since January and manufacturing industry dropped to its lowest level in over five years, according to surveys by Markit Economics. A flash estimate showed the services PMI fell more than expected to 49.3 in September, below the 50 dividing line between expansion and contraction, from 51.4 in August. The manufacturing PMI fell more than forecast to 48.1 from August's 49.7. Asia-Pacific Nomura Holdings Inc., Japan's biggest securities firm, agreed to buy Lehman Brothers Holdings Inc.'s investment banking and equities unit in Europe, securing most of the firm's 2,500 employees in London. The purchase follows Nomura's $225 million takeover yesterday of Lehman's Asian-Pacific unit. 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 Neutral Neutral Neutral Neutral Neutral Neutral Neutral Action None Sell None None None None None Current 1.4660 105.41 1.8522 1.0740 1.0368 0.8328 154.67 Start Position N/A 109.45 N/A N/A N/A N/A N/A Objective N/A N/A N/A N/A N/A N/A N/A Stop N/A 111.90 N/A N/A N/A N/A N/A Support 1.4300 104.00 1.8000 1.0600 1.0300 0.8000 148.00 1.4000 101.00 1.7500 1.0300 1.0100 0.7800 144.00 Resistance 1.4900 108.00 1.8700 1.1000 1.0500 0.8500 157.00 1.5500 110.50 1.9400 1.1400 1.0800 0.9000 160.00 Hans Nilsson Capital Market Services, L.L.C. www.cmsfx.com ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C.