Yen Falls On Possible US Bailout Plan

Daily Forex Fundamentals | Written by CMS Forex | Sep 19 08 01:14 GMT |

The dollar was mostly lower in volatile trading Thursday but later pared losses as US stocks rose on prospects the government is formulating a plan to stabilize financial markets and regulators and pension funds took steps to curb short selling. The yen fell as risk aversion decreased after NY Senator Charles Schumer proposed a new agency to pump capital into troubled financial companies and help home owners. The greenback reversed earlier losses against the pound and Swiss franc. The Canadian and Australian dollars rose. Earlier in the day the Federal Reserve authorized a $180 billion expansion of its swap lines with other world central banks and also pumped another $55 billion into US markets in an effort to unlock the interbank lending market. The EUR/USD rose for a second day but pared gains after unable to penetrate resistance at 1.45. The pair has dropped significantly since late-July but failed to break the long-term uptrend in the 1.40 area last week. The EUR/USD has since consolidated losses and reduced its oversold condition. A break of the downtrend at 1.45 will likely lead to further gains, while a failure to penetrate this resistance will possibly lead to a new test of the long-term uptrend again. Financial and Economic News and Comments US & Canada The Conference Board leading economic indicators index, which points to the direction of the US economy over the next 3-6 months, fell a more-than-forecast 0.5% m/m in August, the third drop in the last four months, after declining 0.7% m/m in July, data from the Conference Board showed. The coincident index, which measures the present state of the economy, declined 0.1% m/m in August after no change in July. The lagging index increased 0.4% m/m in August. Overall, the August Conference Board LEI, like our recent Globicus LEI, shows the US economy has been deteriorating with its economic weakness widespread over the past six months. The coincident indicator peaked at the end of 2007, indicating the US has already entered a mild recession (see our 9/16 report). US initial jobless claims unexpectedly jumped 10,000 on a seasonally-adjusted basis to 455,000 in the week ending September 13, due to the effects of Hurricane Gustav on jobless claims in Louisiana, the Labor Department said. The 4-week average of new claims rose 5,000 to 445,000, above a level typically associated with recessions. Continuing claims declined 55,000 to 3,478,000 in the week ending September 6. However, the 4-week average of those continuing claims rose 29,750 to 3,461,000, the highest level since October 2003. The insured unemployment rate was unchanged at 2.6%. In short, the trend remains weak for the US labor market. The Philadelphia Fed manufacturing index unexpectedly rose to 3.8 in September, the first expansion in 10 months, from -12.7 in August, the Federal Reserve Bank of Philadelphia said. Positive readings signal expansion. The index averaged 5.1 in 2007. The new orders measure rose to 5.6 in September from -11.9 in August. The shipments index increased to 2.6 from -3.3. The prices paid index fell 31.5 after 57.5, while the prices received index declined to 15.5 from 27.0. The employment component rose to 15.5 from 13.5. Overall, the September figures show manufacturing in the Philadelphia region unexpectedly expanded with signs of moderating inflation. The total net worth of US households declined 0.8% to $55.99 trillion in Q2, a third cosecutive drop, from $56.43 trillion in Q1, the Federal Reserve said. Household debt increased at a 1.4% annual rate in Q2, slowing from a 3.3% increase in Q1. The figures signal a deepening credit squeeze. The global major central banks announced coordinated action to ease the credit crisis and stabilize the financial system by boosting short-term liquidity. In a joint statement, the central banks said 'these measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.' NY Senator Charles Schumer, a Democrat who chairs the congressional Joint Economic Committee, proposed an agency to inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages to make them more affordable. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke are considering this new plan, Schumer said. He advocated a Great Depressionera Reconstruction Finance Corp. model, which is different from the Resolution Trust Corp.-type plan. Europe UK retail sales unexpectedly climbed 1.2% m/m in August, a second monthly rise, after increasing 0.9% m/m in July, the Office for National Statistics said. Retail sales rose 3.3% y/y. The UK markets regulator put a ban on short selling of financial shares for the rest of the year after HBOS Plc, the UK's biggest mortgage lender, lost 37% of its market value over three days Asia-Pacific The tertiary index rose 1.2% m/m in July, indicating Japan's demand for services climbed for the first time in three months, the Trade Ministry said. Land prices in Japan declined 1.2% in the twelve months through the end of June, with the rate of decline accelerating for the first time in five years, the Ministry of Land, Infrastructure Transport and Tourism said. 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 Neutral Neutral Neutral Neutral Neutral Neutral Action Sell Sell Sell None None None None Current 1.4357 105.44 1.8194 1.1034 1.0620 0.8030 151.29 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 1.4000 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 1.4500 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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