Newsletter September 15th
Colt FX newsletter Monday September 15th 2008
In this week’s issue:
Forex Review, September 8th to 12th
Calendar and Outlook, September 15th to 19th (updated Monday September 15th 09:00)
Live trading session: Wednesday 17th September
Forex Review September 8th to 12th
The financial sector staggers and the Fed ponders a cut
A hectic week opened with the Fannie and Freddie take-over and closed to the Lehman Brothers melt-down along with growing speculation that the Fed would cut before the year is out.
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Chart 1 EUR (hourly)
EUR/USD (chart 1) opened the week some 50 pips higher than the previous week’s close against the background of the US Treasury’s take-over of mortgage giants Fannie Mae and Freddie Mac. This historic move took some time for the markets to digest and although the euro rose past $1.44, it then fell back as the market evaluated the news as positive. Dollar support came because everyone knew that something had to be done about Fannie and Freddy and the Treasury’s action clarified what was going to be done. By the end of the day EUR/USD was down to 1.41, a level it continued to test through Tuesday. The dollar also benefitted from crude oil prices which fell steadily during Monday and Tuesday. Tuesday’s US Pending Home sales came in much worse than expected and saw a halt in the fall of the euro.
The week’s action started hotting up again on Wednesday. The surprise announcement from OPEC that they would be cutting oil production by more than half a million barrels a day saw the price of oil rise to over $103 a barrel and the euro gain more than 80 points. However, the Euro started moving south after Eurogroup chairman, Jean-Claude Junker, admitted to the European parliament that the bloc could enter a technical recession. Although, ECB chairman Jean-Claude Trichet drew comfort from declining oil prices and said that current monetary policy would play its part in achieving price stability over the medium term, the euro fell on recession gloom, wiping out any gains it had made from the oil price rise. The Wednesday fall gathered pace when troubled bankers, Lehman Brothers rushed through their Q3 earnings report to announce the biggest losses in their 158-year history. The investment bank also announced plans to downsize by selling off a number of assets in a bid to put a bottom under their plummeting share price. The move triggered a flight to safety, with the dollar being seen as a safe haven. This continued through Thursday and the euro fell to a one-year low against the greenback. However, the week wasn’t over and as the crisis at Lehman’s deepened, the bank started negotiations with potential buyers, reducing the demand for the dollar as a safe haven. When weaker than expected US Retail Sales and PPI were released on Friday, speculation mounted that the Fed would be cutting interest rates before the end of the year and the euro enjoyed its biggest rise against the greenback in six months. The euro closed the week a tad above 1.42.
The week’s action started hotting up again on Wednesday. The surprise announcement from OPEC that they would be cutting oil production by more than half a million barrels a day saw the price of oil rise to over $103 a barrel and the euro gain more than 80 points. However, the Euro started moving south after Eurogroup chairman, Jean-Claude Junker, admitted to the European parliament that the bloc could enter a technical recession. Although, ECB chairman Jean-Claude Trichet drew comfort from declining oil prices and said that current monetary policy would play its part in achieving price stability over the medium term, the euro fell on recession gloom, wiping out any gains it had made from the oil price rise. The Wednesday fall gathered pace when troubled bankers, Lehman Brothers rushed through their Q3 earnings report to announce the biggest losses in their 158-year history. The investment bank also announced plans to downsize by selling off a number of assets in a bid to put a bottom under their plummeting share price. The move triggered a flight to safety, with the dollar being seen as a safe haven. This continued through Thursday and the euro fell to a one-year low against the greenback. However, the week wasn’t over and as the crisis at Lehman’s deepened, the bank started negotiations with potential buyers, reducing the demand for the dollar as a safe haven. When weaker than expected US Retail Sales and PPI were released on Friday, speculation mounted that the Fed would be cutting interest rates before the end of the year and the euro enjoyed its biggest rise against the greenback in six months. The euro closed the week a tad above 1.42.
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Chart 2 GBP (hourly)
Sterling (chart 2) gained against the dollar for the first time in 8 weeks. The pound’s initial reaction to the weekend’s Fannie and Freddie take-over was bright and it opened some 100 pips higher than the preceding week’s close. However, once the European trading session opened, the markets supported the Treasury’s weekend bail-out GBP/USD fell from its week highs of 1.7974 to find support at 1.75 in the space of 20 hours or so. The pair was helped on its way south by weak UK Producer Prices. The pound tracked the euro Tuesday through Wednesday by rising on the OPEC announcement and then falling on the release of Lehman’s plans. Thursday’s Monetary Policy Committee parliamentary session heard arch-dove, David Blanchflower, warn of rising unemployment if an interest rate cut wasn’t implemented soon. Sterling fell to fresh two-and-a-half year lows on this.
Sterling’s response to talks to take over Lehman Brothers and Friday’s weak US numbers was even more pronounced than the euro’s and the pair rose 450 points to close with a weekly gain, reflecting just how fast and how far sterling has fallen in recent weeks.
Calendar and Outlook September 15th to 19th
Here are the highlights of this week’s economic calendar (chart 3). For an extensive list of the week’s economic releases and events see our economic calendar.
The economic release of the week is undoubtedly the Fed’s interest rate decision on Tuesday. The consensus is that the Fed will hold at 2.00% this time, but speculation is mounting that they will cut before the New Year. Other US numbers to keep an eye on include housing data on Wednesday; Manufacturing data from New York on Monday and Philadelphia on Thursday and US Industrial Production numbers also on Monday. Consumer Prices on Tuesday will reflect inflationary pressures in the US.
European data includes the ZEW numbers and Consumer inflation, both out on Tuesday. The UK also sees the release of its CPI on Tuesday. If it comes in above 3.0% as expected then the governor of the Bank of England will have to write an open letter to the Chancellor of the Exchequer explaining what he intends to do about it. Wednesday sees the release of UK jobs data and the minutes of the last Monetary Policy Committee meeting when they held rates at 5.00%. Thursday’s UK Retail Sales is also worth watching out for.
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Chart 3 Calendar Highlights
Take a look at the full economic calendar.
Forecast September 15th to 19th (updated Monday 15th 09:00 GMT)
The key factors to dollar strength this week are:
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Although the consensus probably still remains that the Fed will hold tomorrow, the situation at Lehman’s, Merrill, AIG, Washington Mutual et al has prompted some commentators to suggest that a cut is possible. Should the Fed decide to cut, prepare for a period of a significantly weakening dollar
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Oil prices should also be monitored as they could rise in the aftermath of Hurricane Ike and the OPEC announcement to cut production. This morning (Monday 15th) saw oil drop below $100 a barrel and is around $98 as I write. Hurricane Ike does not seem to have had much impact on production and this week sees the return of many oil workers who were evacuated because of Hurricane Gustav. Oil could continue to fall as this financial crisis can only exacerbate the global slow-down.
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Monday morning opened to the news that Lehman Brothers could not find a buyer and is filing for bankruptcy protection. This was immediately followed up by the double whammy that Merrill Lynch had been taken over by the Bank of America. and the ‘fireworks’ I talked about in yesterday’s Forex Focus have come to pass. The markets are in turmoil and both the ECB and the Bank of England have stepped in to stabilize their respective money markets. The currency markets have been very volatile these last few hours with EUR hitting a session high of 1.4480 (now trading at 1.4250); GBP testing 1.81 (currently at 1.79) and JPY currently below 105.
In the light of today’s events we will revise our forecast somewhat:
We see euro dollar finding support at 1.3880. Our original resistance still holds at 1.4385. If EUR breaks through this, our next level is 1.4710
Sterling/Dollar will find support at 1.75, if it overcomes resistance at 1.8120 my next target is 1.8280.
USD/JPY will find support at 103.70 and resistance at 108.50
Watch the latest Forex Focus video
Watch the latest Forex Focus video
Live Trading Sessions
The next session will be on September 17th at 14:30 to 16:30 GMT. We will be trading the live account on two Colt FX pairs and the micro-lot ‘ten to the moon’ feature. We will also be looking at the action on the other Colt FX pairs plus the trading system that Darren sent in and other trading opportunities. I’ll be putting together a YouTube review of last week’s session which I’ll send out to all Live Session members along with the link to this week’s session.
If you’d like to join in, write to me at colt@coltfx.com.
Forex Club’s Platinum Package
Forex Club is offering the Colt FX distance learning course as part of their package of incentives to open a Platinum account. You can learn more about the details of this offer at http://www.fxclub.com/platinum/. You can find out more about Colt FX in our short film What is Colt FX?
Forex Club is offering the Colt FX distance learning course as part of their package of incentives to open a Platinum account. You can learn more about the details of this offer at http://www.fxclub.com/platinum/. You can find out more about Colt FX in our short film What is Colt FX?
That wraps it up for this week. Thank you for reading this far. Have a great week and I hope to see you at www.coltfx.com
If you have any questions about this newsletter or any of our services, please drop me a line at colt@coltfx.com.
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Disclaimer
www.coltfx.com and any of its affiliates, will not be held responsible for the reliability or accuracy of the information available in this newsletter. The content provided is put forward in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Colt FX or its affiliates. The reader agrees not to hold Colt FX or any of its affiliates, liable for decisions that are based on information in this newsletter. We highly recommend that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
www.coltfx.com and any of its affiliates, will not be held responsible for the reliability or accuracy of the information available in this newsletter. The content provided is put forward in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Colt FX or its affiliates. The reader agrees not to hold Colt FX or any of its affiliates, liable for decisions that are based on information in this newsletter. We highly recommend that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
15 September | 
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