Morning forex report
Forex NewsThe Fed cut rates by 50bp on Wed. and left the door open for more rate cuts as needed as they maintained a worried outlook on the economy. This is 125bp off the funds rate in a little over a week, wow! The coupon curve (2yr/10yr) is as steep as you like which should help banks make $$ (borrow short, lend long) but 1) stocks will probably continue to trade flat to lower as the ‘CDO/subprime black holes’ continue to appear and 2) money may remain tight in a credit crunch for a while not just because banks are wary of who they lend to, but because banks are shoring up their capital base as well just in case. And slashed rates will do little to address this for now. Q4 GDP came out at 0.6%, positive which will disappoint recession fans. For the USD? Lower rates are not helping the USD, and the risk is that the USD sells off through $1.50 for $1.57/1.60, Cable up to $2.01 and the CHF is hammering on new USD lows already. On the charts the USD bear trend is clear, and while bottom fishing will attract, right now gauging the effect of the latest rate cut to see if the FX market starts to look forward to a recovery in the US economy. The new lows in the USD/CHF would suggest that the FX market is not looking for a USD bounce any time soon, sustained breach of falling line support at 1.08 would leave 1.05/1.00 to play for, ay caramba! USD/YEN? Mixed, still like 108 for 112/114, see if 105.70/105 keep 101/100 out of play… The interesting thing now is will the ECB start to really feel the heat with the EUR knocking towards $1.50?
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