Market Turns Dollar Negative As Bailout Deal Nears

Daily Forex Fundamentals | Written by Global Forex Trading | Sep 25 08 09:47 GMT |

Top Stories Bush pleads with American public to support bailout Congressional leaders said to have draft of legislation ready to go by Friday Dollar weaker across the board as markets worry bailout deal ultimately dollar negative South China Morning Post reports that Chinese banks told not to lend to US institutions SCMP report later denied by China Banking Regulatory Commission Oil steady at $106/bbl Gold at $890 remains close to $900 handle Overnight Eco NZD CA/GDP ratio –8.4% vs. –7.9% forecast JPY Merchandise Trade -.11T yen turns negative on sharp drop in exports to US, first monthly deficit since 1982 EUR German Consumer Confidence 1.8 vs. 1.5 EUR M3Money Supply 8.8% vs. 8.9% projected EUR Italian Trade Balance much better at 2.07B vs.0.5B expected Event Risk on Tap USD Durable Goods market looks at –1.5% against 1.3% prior USD New Home Sales 510K vs. 515K forecast NZD Q2 GDP expected 0.6% Price Action USD/JPY drops below 106.00 despite horrid Trade numbers as focus remains on dilutive potential of bailout AUD/USD very quiet as 8400 remains a hurdle GBP/USD blows through 1.8600 but offers cap the move as 1.8700 next key level EUR/USD takes out 1.4750 in early Europe as markets sentiment turns dollar bearish Market Turns Dollar Negative as Bailout Deal Nears EUR/USD rallied steadily in early European tradeafter comments by Financial Services Committee Chairman Barney Frank that House and Senate Democrats have agreed on an approach to implement the U.S. Treasury plan to rescue financial institutions. Congressman Frank stated that Democrats will now negotiate with Republicans indicating that a legislative response to the bailout proposal by Treasury Secretary Paulson may come as soon as this week-end. The last several days of Congressional hearings revealed that key details on the valuation process of Mr. Paulson's proposal remain missing. Furthermore, unlike prior US government rescue efforts which contained clear cut structures such as interest rate payment terms on loans and equity warrant participation measures, Mr. Paulson proposal looks more like blind pool offering rather than a conventional financial deal. Granted, while the purpose of the $700B will be limited to purchasing MBS assets, Mr. Paulson was unclear as to which of the seemingly endless variety of securitized instruments the Treasury will invest in raising questions regarding the execution of the government's proposed policy initiative. In short, the currency market went from worrying about whether the bailout deal will be done at all, to becoming more concerned about the plan's impact on capital markets. It is far from clear whether Mr. Paulson's proposal will have the intended calming effect on the credit markets as TED spreads remain near record highs while the dilutive possibilities of additional $700 Billion in US debt could continue to weigh in the dollar going forward. The EUR/USD rose to a high of 1.4769 before retreating to 1.4700 on profit taking and standing offers at the 1.4800 level. The 1.4800 level has now become key resistance as this was a prior level of support before the pair's dramatic collapse in late August. Should the euro take out and hold the 1.4800 figure, it will no doubt signal the currency market's skepticism regarding the efficacy of Mr. Paulson's plan. FX Upcoming Currency GMT EST Release Expected Prior USD 8:30 12:30 USD Durable Goods Orders (AUG) -1.5% 1.3% USD 14:00 10:00 USD New Home Sales (AUG) 510k 515k 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.