Daily Reports FX Greece 8th October 2008

publication date: Oct 10, 2008

Nothing Stands in Dollars Way…Bernanke, Rate Cuts or God himself!

What a week this one is turning out to be, with NIKEI dropping almost 1000 points last night and DOW JONES still trading well below 10.000!The market sentiment remains negative and there is chatter amongst analysts that we haven’t seen anything yet!

Bernanke spoke in Washington late last night and told investors that the economy is suffering at the moment and the damage is much worse than previously estimated (nothing new there) so the bank will have to act accordingly. He also said that inflation starts to ease and the interest rates are not appropriate with everything that went down the past few weeks. This in other words means one thing: the bank will have to cut rates sooner rather than later. Markets didn’t react to his words by selling the dollar, but done the exact opposite and strengthen the dollar against the euro.

Today the economic calendar is empty with European GDP and US pending home sales the only events worth watching. The volatility in the markets is at its highest levels and currencies are acting like some rollercoaster going up and down. This reflects the high uncertainty that all traders feel right now and until we see this reversing, anything is possible.

The sudden move yesterday form FED to buy out all commercial paper directly from eligible issuers, has been the icing in the cake for investors, as this move was indented to bring some kind of assurance to the markets, but end up doing the exact opposite. The reason was that it was perceived as an act of desperation and official acceptance that US banking sector is collapsing, therefore risk aversion returned once again.

EUR/USD is trading in a “trance” these last two days and a move towards 1.3740 was completely reverse in less than an hour. The pair is still trading within 1.35-1.38 range and only a break can lead us to the next level. We favor the downside as everything that happens these days only strengthen the dollar further. As long as risk aversion persists, dollar will continue to get bid against the euro.

All day so far, ECB, BOE and FED are injecting money in the markets in a desperate attempt to bring stability in the markets, but investors don’t get easily “fooled” as they know that there is possibly worse to come.

Another phenomenal move was seen by all carry trades, as USD/JPY broke 100 due to risk aversion and GBP/JPY is moving fast and heavily towards 170. The later has lost more than 2000 points in two days and there is no point for now to try and find a bottom. Until we see markets stabilize the only way to go is south!

Let’s see what will happen today after New York open and how the markets will react to Bernanke s words and the latest attempts by Central banks to alter the already negative sentiment…