- ECB’s Trichet: Rates appropriate; less demand from European banks for ECB liquidity, FX volatility negative for economic and financial stability
- US weekly jobless claims fall 11,000 to 445,000
- Ireland has no intention of imposing losses on senior bank debt holders
- Fed’s Fisher: Crisis-like use of Fed arsenal not needed; fears competitive quantitative ease
- Fed’s Hoenig: Raise rates to 1%, fears unintended consequences of QE
- IMF’s Strauss-Kahn: “No mood” for world currency deal
- US consumer credit falls $3.3 bln in August
- S&P 500 falls 0.2% to 1158; gold closes nearly $30 from $1364 highs, reaches $1326 intraday
- US 2-yr note falls nearly 3 bp to 0.36%, 10-yr note unch at 2.38%
Markets are always most volatile at tops and bottoms, the old adage goes. If so, maybe we are near a dollar bottom…
EUR/USD surged through very large defense ahead of 1.4000 barrier options (well in excess of EUR 600 mln was sold defending that level) after ECB’s Trichet noted that the funding needs of the European banking system fell by EUR 79 bln, indicating some of the weaker banks have been able to secure funding in the markets rather than having to rely on the ECB, a positive for the system.
The rally did not last long, however. We stalled at 1.4030 a soon began a sharp retracement. Trichet raised objections to recent currency “volatility” as EUR/USD cleared the 1.4000 level. Selling from the Middle East was noted on the way back below 1.4000 and soon stops below 1.3960 were triggered. More went below 1.3920, 1.3900 and especially 1.3880 EUR/USD bottomed at 1.3857 in early afternoon in New York.
Chinese buying in the 1.3860s (no doubt buying back some of the EUR/USD they lost toward 1.4000 at a healthy profit.) helped stabilize the market and lowered fears of a collapse. Prices rebounded into the 1.3920s in late afternoon trade as intraday shorts covered and dip buyers took advantage of cheaper prices. Offers are seen in the 1.3960 area now on rebounds, and again toward 1.4000.
USD/JPY fell to 82.11 as the dollar reached its nadir but selling of EUR/JPY helped keep USD/JPY rebounds quite shallow. 82.52 was the rebound high. EUR/JPY fell as low as 114.25 from 115.65 and closes at 114.75.
EUR/GBP fell as EUR/USD tumbled, cushioning the blow to cable as it pulled back from 1.6017 highs. Those highs were put in place within 35 minutes of the BOE announcement that it had made no move on rates or quantitative ease. The subsequent high stalled below 1.6000 and lows of 1.5830. We close at 1.5875.
AUD/USD traded up to 0.9920, the highest level in over 32 years before turning sharply lower as the dollar slide in early US trade proved exhaustive. 0.9783 was the intraday low during New York hours, revisiting the levels where AUD traded before the upbeat employment report. We close at 0.9825, below the July 2008 highs of 0.9849, suggesting we may have had a blow-off top today.
USD/CAD did not even equal yesterday’s lows despite the meltdown in the greenback across the bard. It shot up to 1.0210 on short-covering before closing at 1.0175.
