I do have a different perspective, but 15 billion is not
enough for FNM/FRE. Yeah, and oversold won't work for some
time if this actually happens... <G> It's a downgrade
of the bailout machine by Mr. Market. The end. Systemic collapse.
Might not happen now, of course.
Euro is on the move... HIGHER. 1.5961
dailyfx.com
Will The Dollar Buckle?
Written by Boris Schlossberg, Senior Currency Strategist with
Terri Belkas, John Kicklighter, David RodrÃguez, John Rivera,
Ilya Spivak, Currency Strategists
Forget microeconomics. The currency market these days is trading almost exclusively on two macro themes. One - are Fannie and Freddie about to cause a systemic collapse of the US financial system? Two – is Iran really trying to provoke a military response from Israel? If the answer to either one of those questions is yes, the dollar may buckle under pressure.
In the first case, a bankruptcy of the two GSE giants which between them guarantee more than 5 Trillion dollars of mortgage assets could create a massive disruption in the financial system sending capital towards the euro as a safe haven bid. In the second case, escalation of geopolitical tensions is likely to only expand the fear premium in crude as worries about disruptions in the strait of Hirmuz will keep oil traders in a state of anxiety and push prices above the $150 level. In that outcome, skyrocketing inflation will also favor the euro as the ECB appears to be far more serious about controlling price pressures than the Fed.
Fortunately, as the week came to a close neither one of the doomsday scenarios occurred. Fannie and Freddie managed to live another day and the fixed income markets narrowed the spread premium of their bonds over Treasuries as authorities worked all day to reassure the markets. If the dust settles next week and investor confidence returns, the dollar could see a rebound, especially against the yen as risk premiums abate. If however we see a second round of panic selling and the Dow continues to drop towards the 10K level, the dollar will likely weaken across the board with EURUSD pushing through the 1.60 figure as volatility spikes.
As to the micro story, inflation gauges will be the focus of the week with both PPI and CPI numbers due out mid-week. Given the merciless increases in energy costs, inflation reports are likely to surprise to the upside but just how much of an impact they will have on price remains to be seen. One other report that’s sure to interest the currency market will be the minutes of the last FOMC meeting which may help traders determine the seriousness of Fed intention to fight inflation and finally everyone will pay attention to the Retail Sales number to sense just how well the US consumer is coping with this turmoil. BS |
