Daily Reports FX Greece 30th September 2008

publication date: Sep 30, 2008

Traders Gave Their Answer to Rescue Plan Rejection by Causing Mayhem in the Financial Markets…What‘s Next?


The Congress has spoken: A big “NO” for the 700B rescue plan…The investors  have spoken too: A negative response at the decision, with all markets deep in the red, DOW JONES falling more than 700 points, oil down 10 dollars and all other markets trading like a rollercoaster with frustration and fear the main drivers! What a chaos in the financial world! The three musketeers Paulson, Bernanke and Bush failed to impress the US Congress and now we are back where we started.
EUR/USD was trading at 1.4380 at the time of the decision, and a big move taken it within a few minutes all the way back above 1.45.However, move was exaggerated as liquidity conditions were thin and stops got hit after 1.4480. This morning the pair was trading back below 1.44, however so far it holds good support at 1.4330. A clear break of that level will open way to 1.4280 where buyers will possibly emerge.
GBP/USD was the weakest pair of all, as it only managed to go up to 1.8175 after the decision and later it gave all its gains back. Sterling is really on the defensive these days, what with bad economic conditions and high inflationary pressures making it difficult for BOE to decide its next move on rates. Analysts predict that the bank will have to cut rates soon and bets are on for the next meeting. Next level to watch is 1.7920-50 were good support lies there and only a break of that level will push the pair towards 1.75.
There are other factors that cannot be ignored regarding the Congress rejection. Let’s not forget that in a few weeks we have the US elections and the political games have already started. The economic crisis is certainly hitting all parties involved, however the republicans managed to come out as the “good guys” who said NO to this risky multi billion plans at times were the American public is looking for reassurance that things will be okay in the near future.
There was news this morning that the plan will go back to Congress tomorrow slightly “altered” in order to be voted once again. Now, why do we have the feeling that this time the plan will be all of a sudden approved? Let’s see what the developments will be and one thing is for sure, plan or no plan the global economy is suffering at the moment and the next question is not if we have further liquidity problems in the banking sector, but when?
So, it will be interesting to see New York opening and how will the futures and commodities markets react to all this and if the dollar continue to be up despite all this turmoil in the financial sectors. Don’t forget that one of the reasons why dollar is strong is because Euro zone is suffering as well and also traders start to price in that ECB might be pressured to cut rates as soon as this Thursday…
EUR/USD seems to be trading within 1.43-1.46 range and only a clear break of those levels will give us some king of direction as to where the pair is heading next. 1.4280 and 1,45 good support/resistance levels.
GBP/USD is still on a downtrend move; however, it managed so far to keep 1.7920 intact. A clear break of that level will open way for 1.7860 ahead of 1.78. On the upside, the pair has to take out 1.8180-1.82 in order to move back up towards 1.84.