Forex - Markets react to Wallstreet meltdown - Risk aversion drives markets, has the dollar's bull run ended?

Forex News and Events: Lehman Brothers Files for Chapter 11 Bankruptcy, Bank of America buys Merrill Lynch for $44Bn, 70% premium and AIG seeks $50Bn capital rise to avoid being downgraded. The Dollar weakened on Friday as PPI numbers fell short of market expectations. The same traders flocking to the dollar a mere 24h before (Thursday’s 1.3882 in EURUSD a 1 year low) were offloading their dollar trades amid fears of an ensuing financial collapse in wall street. The dollar’s recent strength on the back of risk aversion subsided as news of Lehman Brothers in urgent talks for a takeover by Barclays or Bank of America hit the news wires. The Dollar has recently been impervious to bad news and negative market sentiment; one wonders if this is finally a kink in the dollar’s armor and an end to an impressive bull market these past 2 months.      The low-yielding Japanese Yen ended the day higher against the dollar as continued risk aversion and slow Japanese economy drive carry trade opportunists. Exceptional market volatility in last weeks trading sessions show that indecision in the forex markets and global markets in general are driving forces for the Yen crosses. Many Asian markets to be closed today.   EURUSD continued Thursdays bullish move, trading up from 1.3993 at opening and continuing, to close at 1.4294 a 2.15% rise in one day. The USDJPY traded in very volatile fashion opening at 107.13, trading up to 107.56, before US PPI figures initially sent it to an intraday low of 106.81 before closing at 107.93 – a 0.75% increase on open. USDCHF opening at 1.0379 and trading in a bearish trend as dollar weakened, closing at 1.0304 – a 0.72% drop in the currency pair. GBPUSD continued its previous session’s trend. Trading 450 pips higher to close at 1.7985 – a 2.46% rise on 1.7553 open for the session.

Today's Key Issues (time in GMT): 06:45 EUR French Current Accounts 07:15 CHF Retail Sales 07:15 CHF Producer and Import Prices 08:00 EUR Italian CPI 09:00 EUR Eurozone Labour Costs 12:30 CAD New Motor Vehicle Sales 12:30 USD Empire Manufacturing 13:15 USD Capacity Utilization 13:15 USD Industrial Production

The Risk Today: EurUsd The pair traded higher on Friday closing 2.15% higher in intraday performance. The pair tested a yearly support at 1.4470 as a double top forms – only to retrace on weak US numbers. Further weakness will put the focus on strong support 1.3666 December 2004 high and 1.3056 support (retracement of 0.8231 – 1.6039 advance). On the upside, only a return over 1.5000 and 1.5500 will release actual pressure and put key initial resistance 1.6000 into focus. GbpUsd Cable rose significantly, gaining almost 2.5% in one session. Markets find support on 1.7422 (50% retracement of 1.3682 – 2.1161 advance). On the upside, initial resistance holds 1.7976 8th September high. Strong resistance holds 1.8795 21st August high. Former support 1.9363 holds also strong resistance. Key level holds 2.0100 resistance. UsdJpy Market touching the 38.2% Fibonacci retracement at 105.55 on Friday (97.01 – 110.83 bullish trend). Further pressure may open the way toward 104.76 support, as well as 103.77 support. Initial support holds 105 strong support. Initial resistance holds 109.08 Monday high. UsdChf Market rose as high as 1.1399 on Friday. Strong resistance holds 1.1593 December 2007 high. On the downside, initial support holds 1.0844. Only renewed weakness below 1.0500 and 1.0375 would retest the 1.0000 pivot point and may open the way toward 0.9637 17th March low.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.6000 K 1.9363 K 111.92 K 1.2153 T 1.5500 P 1.8795 S 110.67 M 1.1593 S 1.5000 S 1.7679 M 109.18 M 1.1418 M 1.4395 1.8044 105.90 1.1128 1.3882 M 1.7563 M 105.53 M 1.0863 S 1.3666 S 1.7500 S 105.00 S 1.0500 S 1.3056 T 1.7251 S 102.73 S 1.0000 P S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot