euro gaps down to 1.3665 as the FX markets open. wash, rinse, repeat. bad for equities and commodities, too!
What a gap! Excellent news for my YEN long. I may have underestimated the global impact of this financial crisis however.
Interesting Times. Rumor is Fed may cut before markets open if ASIA and futures tank heavy tonight. A rise in USD implies the rest of the world is in a more serious crisis than us. At least that's my interpretation anyway of a dollar rally.
I keep thinking back to something I read many years ago which was a scenario talking about the first stages of a currency crisis. Started off with USD being repatriated & temporarily strengthening. Only after that did the dollar dis-integrate. Not sure that isn't the case here. Time will tell. As my cash is mostly in USD, I will take the relative losses on my hedge. Too bad my costs aren't going down!
I think the probability of a surprise rate cut is VERY high. - World markets closed up on Friday, the US closed down. We'll likely some Monday selling - Stocks fell on the news of the bill passing the house. - The Fed Funds daily effective rate is a whopping full 1% below the Target rate http://www.newyorkfed.org/charts/ff/ - Bernanke authored studies on surprise rate cuts and came to the conclusion that stock markets responded positively to positive surprises (eg. big, unexpected cuts). He needs equity values to turn around. So, I think a big cut is basically imminent.
I think the main reason is 1) US-banks sell foreign assets to enhance their liquidity (thus they convert into US-Dollar). 2) Trend following Hedge Fonds under water with BIG US-Dollar short positions. There are some very very crazy moves going on right now (like VW shares at all time high, this is also only caused by massive short covering from some Hedge funds). I think there are no fundamental reasons behind this move because the situation in Europe and USA is similar. Japan is a little better because the banks there are now much better controlled since the 87 Japan banking crash. I would buy Japanese banks right now. And selected German banks. If the situation stabilizes and the deleveraging has been done the Euro will come back.
i have the same feeling. current buying maybe only due to realizing of losses on USD assets and flattening out the residual exposure (i.e. USD losses). there is also a factor of huge demand for US assets as many used to be leveraged/funded in USD. this trend will not stop till the market settles - which may be very well sooner rather than later. then it becomes a different story - the external balance was just approved to go more into imbalance because foreigners will have to finance the US bailout. Strenghtenning USD will decrease exports and deepen US recession calling for more cuts (again dollar negative). it will not decrease imports because opec/russia will support crude at around current levels (at least). as soon as market realizes this we may be for some volatility of USD pairs - i do not believe in anything like "crash" though. the wise thing is probably to slowly sell dollar into this rally if you want to have fx exposure in the long term... of course there will be lots of trading opportunities in the meantime.