Daily Forex Snapshots

European Financials Weaken Providing for Dollar Strength

October 06, 2008 6:03 PM CEST

G10 Advancers and Decliners vs USD

	Jpy	4.06
	Chf	-1.39
	Cad	-1.69
	Gbp	-1.82
	Dkk	-1.83
	Eur	-1.83
	Sek	-2.13
	Nok	-3.36
	Nzd	-5.26
	Aud	-7.82

Global Indexes

Current Level

% Change

DJIA Index	9,837.86	- 4.72
S&P 500 Index	1,040.69	- 5.33
NASDAQ 100 Index	1,836.34	- 5.70
FTSE futures	4,607.50	- 7.94
CAC futures	3,754.50	- 8.12
DAX futures	5,441.50	- 6.94
SMI Futures	6,515.00	- 5.51

World Markets

Current Level

% Change

Crude wti	90.34	- 3.77
Gold	857.53	+ 2.64
Silver	11.15	+ 0.05
USD Index	81.44	+ 1.41
VIX	53.88	+ 19.36

Todays Calender

Estimates

Country / GMT

No Major Events Scheduled

Currency Tech

AUDUSD
R 3: 0.7944
R 2: 0.7818
R 1: 0.7738
CURRENT: 0.7500
S 1: 0.7416
S 2: 0.7379
S 3: 0.7270

EURJPY
R 3: 148.69
R 2. 146.85
R 1: 144.97
CURRENT: 140.32
S 1: 139.92
S 2: 139.15
S 3: 138.24

USDSGD
R 3: 1.4859
R 2: 1.4760
R 1: 1.4698
CURRENT: 1.4606
S 1: 1.4537
S 2: 1.4458
S 3: 1.4374

Market Brief

The Usd gained strength across the G10 on European bank woes and concerns about the slowing global economy. The EurUsd dropped nearly 300 pips to its lowest levels since Q4 07, the pair traded down to the high range of 1.34. The carry trade continues to unwind as funding for banks continue to battle adversity, the UsdJpy broker previous support trading with a 101 handle. The GbpUsd collapsed to the high range of 1.76, losing over 300 pips in early trading. Equity markets weakened substantially with the Dow down 400pts pushing the index below 10,000. Bonds yields continue to tighten, with the 2yr in 14bps, the latter part of curve followed suit. Commodities also experienced a major price correction with oil trading below $90, while gold spiked up in intraday trading to the $860 level.

Turmoil continues in the global markets with the European banking sector facing the effects of the credit crisis. German officials rescued Hypo Real Estate, one of the country’s largest lenders. Dutch firm Fortis was forced into the arms of BNP Paribas, as they were also on the brink of failure and the govt. coordinated bailout fell through. This is further testament to the serious condition of financials and the concerns regarding the economic condition are worsening. BoE member Darling spoke this weekend stating that they are prepared to do what is necessary to help stabilize the markets. Traders are already pricing in a 50bps cut to rates, hence why we are seeing cable weakness. Our trading range for the sterling is 1.75-1.71 with a bias to the downside.

The US financial markets are struggling, despite the Fed bailout plan, as the effects from this will take time. Economic conditions are projected to worsen as growth slows and unemployment rises. The Fed will most likely cut rates as a last resort in combating the recession. The dollar has appreciated against most of the G10, with the exception of the Yen. We are looking for the EurUsd to weaken towards levels of 1.33 within the next month.

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Asian Session - Continued Pressure on European Financial Sector

October 06, 2008 9:14 AM CEST

G10 Advancers and Decliners vs USD

	JPY	2.44
	CHF	-0.42
	GBP	-0.76
	CAD	-1.11
	DKK	-1.63
	EUR	-1.62
	NZD	-2.08
	SEK	-2.18
	NOK	-2.69
	AUD	-3.41

Global Indexes

Current Level

% Change

Nikkei 225 Index	10,473.09	- 4.25
Hang Seng Index	16,965.06	- 4.05
Shanghai Index	2,179.99	- 4.96
FTSE futures	5,005.00	+ 2.02
CAC futures	3,850.50	- 5.77
SMI Futures	6,895.00	+ 2.04
DJIA futures	10,150.00	- 2.06

World Markets

Current Level

% Change

Gold	830.75	- 0.56
Silver	11.08	- 0.55
VIX	45.14	- 0.26
Crude wti	90.78	- 3.30
USD Index	81.26	+ 1.18

Todays Calender

Estimates

Country / GMT

Manufacturing Output (Aug)	--	-0.2%,-1.4	UK / 8.30
Industrial Production (Aug)	--	-0.4%,-1.9	UK / 8.30

Currency Tech

Market Brief

The Usd continued to gain strength in the Asian session, as escalating problems in the European banking sector unnerved participants. The EurUsd slipped, trading down from 1.3724 to 1.3561, while the UsdJpy slipped from 105.43 to 102.87. Asian equities sold off, with Shanghai down -4.61% and European indexes poised to open lower. Crude prices slid to $91.30bbl, while spot gold fell -0.79%, despite the increase in risk aversion. VIX is still well elevated at 45.14, although the Emergency Economic Stabilization Act was passed broadly in the House of Representatives on Friday and quickly signed by President Bush (Friday, Wall Street closed lower).

The passing of the EESA will help prop up prices of distressed financial assets and begin instilling confidence among banks. However, it will take a while to fully implement and until then the international financial system will stay under stress. Over the weekend, German officials were required to step in to renegotiate a rescue package for one of the country's largest banks and then also declare a full guarantee on all private savings, following Irelandʼs move last week. Quickly after, Denmark followed with its own guarantee plan and we expect other European countries to follow suit. There has been increasing call for a comprehensive European plan. The way markets shrugged off the last week negative US data, including Friday NFP, which fell -159k, illustrates the markets focus. With the financial sectors turmoil defining trading patterns, including FX, markets will be focused on the unfolding developments, rather than underlying economic fundamentals or traditional correlations (ie oil and Usd). In this current environment, we expect the Usd to continue to gain strength.

Perhaps the only economic events which will give the markets pause will be the BoJ and RBA rate announcements this week. We expect the BoJ to unanimous vote for rates to remain on hold with a great focus on developments in financial markets. In regard to the RBA, we are looking for a 50bp cut. However, with the hastily deteriorating position of the developed economies, the RBA might be forced to ease further to shore up growth.

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