Forex - Central banks unite to ease liquidity freeze as the dollar tumbles, WallStreet saga continues.

Forex News and Events: The equity markets continue to squirm as uncertainty in the future of AIG and Wall Street’s financial giants continues to plague global sentiment in the sector. AIG stocks slumped since the weekend on news of it’s downgrade by rating agencies, which brought to light an abundance of indications that it would urgently require emergency recapitalization. After dodging the Lehmans rescue the FED took the plunge yesterday and finalized an $85Bn lifeline for AIG, taking a 79.9% stake in the Insurance giant. The U.S financial woes seem a far cry from reaching their end, having a far reaching effect on global markets. The newswires are riddled with somber indications of a crash reminiscent of the 1920’s. Nikkei 225 down -2.2%, ASX 200 down -2.4%, DJ -4.00%, S&P 500 -4.7%. European equities were slightly up yesterday as risk aversion switches sides. A selection of central banks (BoJ, ECB, BoE, BoC and the SNB) around the world have agreed to pool an $180Bn infusion into markets to provide much needed liquidity. The fed has authorized the auction in a bid to jumpstart the stagnant credit markets in the wake of the Lehmans debacle, as fears of more bank failures would come to light before the end of this crisis. Rumors of an emergency rate cut by the FED on Tuesday amidst the failing health of the US economy left many holding their breath before eventually announcing rates to stay at 2%. The Dollar has erased all it’s September gains against majors as a consequence of the recent developments in the credit crunch. The global slowdown that started a year ago on the back of the subprime revelation has accentuated the volatility currency markets are known for. The EURUSD rose from a 1.4100 low on Wednesday, reaching 1.4380 levels, a 2% intraday gain. The GBPUSD pair gained 2.2%, 350pips in 3 hours yesterday as the Pound gained on consumer sentiment and figures and the news of the global central bank injection. The Yen lost some ground against the dollar on Tuesday but resuming on Wednesday as risk aversion and carry trades drive the yen forward. Commodities rose as the dollar index fell substantially yesterday (-0.752%). Crude rising 1.84% to $98.95/barrel. Gold showed an exceptional bull run, rising 12% in intraday moves, rising from $770/oz. levels to $860/oz.

Today's Key Issues (time in GMT): 12:00 CHF Swiss National Bank rate decision 12:30 CAD Leading Indicators 12:30 CAD Wholesale Sales 12:30 USD Initial Jobless Claims 14:00 USD Philadelphia Fed 14:00 USD Leading Indicators

The Risk Today: EurUsd The EURUSD pair confirmed a previous support at 1.4100 before an impressive intraday bull run to 1.4380 levels – confirming the 61.80% retracement support at 1.4115 levels from the bullish move started Sept 11. Breaking initial supprt at 1.4250 and settling at the end of day on the 23.60% retracement at 1.4340. Initial support seen at 1.4280, then 1.4180. While upside resistance at 1.4500 which then leads the way for 1.4800 levels – end of August Levels. GbpUsd Cable showed strength on the back of positive news in consumer sentiment yesterday. GBPUSD rose as dollar weakness shone through. Fibonacci levels from the bullish move initiated Sept.15 show clearly the 50% retracement at 1.7790 was tested numerous times on the 16th and 17th before breaking away and regaining 1.8130 levels – the high of said move. Support can be found at 1.7980 then 1.7870, while resistance can be seen at 1.8400, paving the way for 1.8600 within the next week. UsdJpy USDJPY continues to stay in a range of 103.54 and 106.71 despite much volatility. The overall outlook remains unchanged. In the bigger picture, whole medium term rebound from 95.77 should have been completed at 110.66 with a bearish divergence condition in daily MACD. A sustained break of 103.76 support will confirm this case. On the upside, though, above 107.97 resistance will invalidate the bearish view. Strong support to be found at 103.79, with a pivot around 105.24 and resistance sought at 106.11 levels. UsdChf The swiss currency’s correction from 1.1416 resumed by taking out 1.1045 level as dollar strength takes a dive and Swiss currency’s “safe haven” status attracts investors. Downside and Swiss Franc’s strength expected to be confirmed if support of 1.0820 is broken, which leads the way for much deeper decline, on the way to parity – with strong support at 1.0623. Upside, any move above 1.1248 will flip bias back to the upside.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5000 K 1.8600 K 110.00 K 1.2150 T 1.4800 K 1.8400 S 106.30 M 1.1600 S 1.4500 S 1.8200 M 105.20 M 1.1250 M 1.4430 1.8130 104.50 1.0950 1.4280 M 1.8050 M 103.80 M 1.0820 S 1.4180 S 1.7980 S 103.00 S 1.0620 S 1.4000 K 1.7500 K 102.20 S 1.0000 P S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot