The dollar was battered in intraday trading as the market reacts to the announcement of another US Govt. bailout. The EurUsd rose sharply by 190pips to the high range of 1.27, while the UsdJpy is mostly flat slight under 97. The GbpUsd rose over 70 pips finding resistance near 1.50 as risk aversion eases in the marketplace. Equity futures are pointing higher in the US, following the trend of European stock indexes with the FTSE up 175pts or 4.6% and the DAX up 141pts or 3.4%. Commodities are consistent with the bias towards risky assets in early trading, oil is higher by 3.7% at $51bbl, and gold up 2.5% at $821oz. Bonds are appearing to be overbought, but an unwinding is unlikely to occur until further stabilization in credit related sectors occurs. Yields are slightly higher on US and European Govt. backed securities, but being that an air of fear still lurks in this volatile environment expect Traders to start bond buying by the close of the US session.

German Ifo index came in lower than expected at 85.8 vs. the projected figure of 88.7. This additional economic data is disappointing, and important to be cognizant of, even though economic fundamentals currently have little effect on price behavior. The Ifo figure at its level since the 1992‐93 recession, expectations have dropped below 80, which is further evidence that long term pessimism regarding long‐term outlook remains strong. German GDP is scheduled to be released tomorrow and forecasts indicate another negative quarter. In the UK, the Pre‐budget report will be out and is probably going to detail an in depth spending plan to stimulate growth. The 20Bln fiscal stimulus plan sounds similar to actions the Fed and ECB may launch to salvage deteriorating economic conditions.

Existing home sales are set to be released at 10:00est in the US, a steep drop of ‐0.5% is expected. The controlling theme in trading activity has been the Citigroup bailout, with the govt. guaranteeing $306bln of assets. They are set to receive a $20bln cash injection from the TARP, which helped boost the stock over 40% in the German trading. Look for short term relief through an early rally in equities, gains in both the Euro and Sterling, as well as high yielders in Asia. This reactionary move will probably trail‐off by the end of the US session and a resurgence of risk aversion will cause continued volatility in the market.

ACM Forex
Advanced Currency Markets