$700bn Bailout
$700bn BailoutMarket Brief
The Usd was weaker in the Asian session, as the US Treasury’s bailout plan consequence is viewed with uncertainty. The EurUsd, in choppy trading, ranged from 1.4440 to 1.4560, while the UsdJpy dropped from 107.40 to 106.43. Carry trades came under pressures, as risk aversion was still the name of the game. The EurJpy slipped to 154.00 and the NzdJpy traded down to 72.73. Participants are still warys of EM and high yielders, despite weakness in the Usd. Crude is well trenched above the $100bll at $105.36bll and VIX is down slightly at 32.00. Regional Asian equity markets are in the green, following Friday’s Wall Street rally and European stock futures are poised to open higher (however US markets are looking to correct with futures trading lower).
The US Treasury’s plan was debated and adjusted over the weekend. The current plan has the US government purchasing up to $700bn in mortgage related assets. So far, the purchases will be limited to financial institutions with significant operations in the US (a point causing much irritation). US Senator Schumer stated that the schedule is for Congress to vote on the legislation this week and have the legislation to be given to President Bush by Friday. How this bailout will play out in the FX markets is still very much open for interpretation. Generally monetary rescues are Usd negative, while fiscal rescues are Usd Positive. As the plan stands, it should be viewed as a fiscal bailout and therefore Usd positive. However, that is not what we are seeing in the markets currently. One explanation is that the massive scale of the bailout would cause treasury yields to rise and, therefore, put additional stress on the already fragile US economic conditions.
With no major data releases scheduled today, markets will be watching Trichet’s speech, developments around the bailout plan & equity markets levels. The situation remains fluid and highly volatile.
ACM FOREX
Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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