Sunday night the Fed emergency move weighed heavily on the U.S. Dollar as traders sought the security of the Euro, Yen and Swiss. The Fed cut interest rates at the discount window and is now allowing investment banks the opportunity to borrow funds just like commercial banks. Fear is circulating throughout the trading community as the world realizes that the Fed is no long only fighting a battle against inflation and a credit crunch but also dealing with a bank solvency issue.
The FOMC will announce the result of its monetary policy meeting tomorrow (Tuesday, March 18) at 2:15 pm EST. The consensus has been trading a 50 bp cut while some see as much as a 75 â€“ 100 bp cut to 2.25 % - 2.00%. Even if it cuts the full 1%, the Fed is expected to announce in its press release continued concerns about the economy, the bank crisis and financial market turmoil. In addition, the Fed will continue with the theme that it will do all it can to stave off a recession, to provide liquidity, and to prevent market turmoil.
Other reports due out on Tuesday include February Building Permits, Housing Starts and PPI. The street is guessing building permits at 1.020 million units in February vs. 1.061 million units in January. Housing starts are estimated to decline to 990,000 units, down from 1.012 million units. The PPI is expected to drop to 0.3% and the core PPI is forecasted to drop to 0.4%.
EURUSD: The EUR is expected to remain strong, as there is no threat of intervention at this time. Despite rhetoric from the ECB last week, trying to talk the market down is not working. Key support moves up to 1.55570. Based on the strength of this up-trending support, the first time it is broken is likely to signal the start of good-sized decline.
GBPUSD: Fear of the bank crisis spreading to the UK put downside pressure on the market today. The BoE also freed up some funds to help ease a developing credit issue. The reversal top on Friday should have been the first sign that this market was in trouble. The follow through on Monday was the confirmation. In addition to the reversal top, a major up trending support line was broken. The main trend turned down on the trade through 1.9993. With the main trend down, sell a rally back to 2.017. The chart suggests a minimum downside target on this break of 1.987 to 1.975. Look to be a buyer in this zone.
USDJPY: The JPY continued its rally as risk-adverse traders sought the safe haven of the Yen. Although the Japanese Minister of Finance is expressing some concerns, he claims there is no need for an intervention. With the USDJPY at 12-year lows and short-term indicators oversold, do not be surprised by a short-covering rally. Support is 95.20. Sell a rally back to 100.16.
USDCHF: The USDCHF hit an all time high against the USD as traders chased the safety of the Swiss Franc. Look for more downside pressure as long as there is financial turmoil in the global community. Any rally is likely to be short covering and technical in nature.
USDCAD: The USDCAD is not attracting much interest in either direction, as traders believe that the two countries' economies are so closely linked that this pair is at a fair-value. There could be a problem if Crude oil and/or Gold start to weaken as the CAD have been supported recently by strong exports. Continue to monitor the health of the U.S. economy for short-term direction. 1.00 is pegged as resistance and .9710 support.
AUDUSD: Traders sold AUDUSD as the world sought stability and safety. The AUD seems pricey at current levels. The main trend turned down on a trade through .9147. The downside objective is .9005 to .8888. Sell rallies and trade with the downtrend.
NZDUSD: The recent rally stopped short of making a new all time high on light trading. A double top has been formed at .8215 -.8214. A trade through .7872 will confirm the double top and is likely to trigger a correction all the way back to .7798 to .7782. Traders are selling NZD because of the risk associated with holding risky assets. Sell rallies. Look to buy .7798 to .7700.
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