Geithner Set to Announce Details of Public - Private Sector Partnership to Buy $1 Trillion in Toxic Assets - Risk Appetite Prevails, for Now
The broad-scale quantative easing measures enacted or forecast by major central banks in past weeks and recently joined by the U.S has seen risk appetite improve. The previously risk averse dynamic to the currency markets saw the greenback gain as much as 23.2% ( Oct 28th Low of 1.2330) against the Euro from the July 15th high of 1.6038. However, in recent weeks this relationship has shifted, with risk appetite returning to the markets amidst a widespread movement to ease monetary policy.The U.S Treasury is set to announce what global media has been quietly whispering for a week now with regards to their public-private sector purchase of toxic assets. The government is expected to allocate $75 - $100Bn from their bailout fund to finance a joint-private sector buyout of up to $1 trillion in toxic bank assets that has been gripping the U.S Financial system and impeding its recovery. President Obama saying on CBS' 60-minutes that “There are certain institutions that are so big that if they fail, they bring a lot of other financial institutions down with them” he went on to say “… then you could see an even more destructive recession and potentially depression” while defended his government's aggressive spending that would run up a U.S Account deficit of $1.85 trillion. Asian equities are up this morning on anticipation of the plan. For the time being the Greenback is expected to continue it's decline against the Euro as the ECB continues to hold a conservative line regarding their actions - A top in the Euro-dollar will come when the ECB decides to join the Quantative easing crowd (SNB, BoE, BoJ and Fed to name a few) - however many analysts feel this isn't to be expected in the immediate future. The Euro rose 7.5% against the dollar since February as risk appetite returns to the markets as governments provide assurances to the markets by spending colossal amounts to bolster economic recovery - especially in the financial and housing sectors, the culprits in this whole mess. The EURUSD is forecast to hit a strong resistance at $1.40 in coming weeks but this Geithner plan is to be watched closely as the Government has waivered executive pay cap rules for the companies that do join in the scheme, once the full details of this are spilled to the public general sentiment could falter as a consequence. Let's all remember that the Euro bounced similarly near year end (end of Q4), we are set for a similar dynamic for the end of Q1 '09.For the week ahead, Existing home sales today, Geithner and Bernanke will testify before the house of financial services committee on Tuesday and Thursday. New home sales and durable goods on Wednesday.
Today Key Issues (time in GMT):
* 10:00 EUR Euro-zone trade balance (JAN)
* 12:30 CAD Leading indicators (MoM) (FEB)
* 12:45 USD Treasury secretary Geithner's unveiling of troubled asset purchasing program
* 14:00 USD Existing home sales (MoM) (FEB)
The Risk today:
EurUsd Triple top off 1.3748 (38.20% retracement on 1.6060 - 1.2320 broad move) shows strong resistance. Further dollar weakness and break from this level would set the tone for 1.3850 (61.80% retracement on beginning of year dollar rally). On the downside we see initial support at 1.3545 (tested 6 times on Friday), further pair weakness aims for 1.3108.
GbpUsd March 9th turn-around positive trend failed to materialize 1.4599 break which is our initial resistance. Large upside ranges as we test new monthly highs - levels last seen mid-Feb, if upside persists we can expect large moves. On the downside 1.4399 is strong support, which would open the doors for 1.4119.
UsdJpy The dollar-yen being most exposed to risk driven trades continues to behave as it has after the massive repatriation subsided (which saw the Yen rise stronger than the dollar did). Strong support stands at 95.70, which could see the pair test 93.55 (March 19th Low). On the upside we see initial resistance at 96.46, with short term target on 97.10 (lower extremity of the range we traded for most of March) however further dollar weakness would set the bias for the pair on the downside.
UsdChf Trading a tight range since late last week, 1.1279 as initial resistance. Bias is on the downside where we see an initial support at 1.1222, which would allow for new monthly lows of 1.1157 and the psychological 1.1100. 1.0372 low of Jan W1 mid-term target.