The developments on the credit markets and the Fed actions in an attempt to stem the systematic risk on these markets continue to hunt the dollar. On Friday, the dollar tried to make a comeback in the morning session inurope, however the high profile events in the US credit markets (Bear Stearns) and the emergency action of the Fed on Friday and over the weekend only made the dollar sell-off to accelerate. EUR/USD already reached now highs above 1.5650 on Friday and the Fed emergency action over the weekend only reinforced the dollar distrust with EUR/USD spiking to new highs at around 1.5900 this morning. This very much looks a panic dollar selling
Today, the US calendar contains the current account, the NY Empire state Manufacturing, the TIC data, the industrial production data and the NAHB housing index. However, the developments on the credit markets and the market reaction at the Fed emergence actions will continue to take center stage today. .
Regarding trading, we have a long standing dollar negative bias and of course still don't feel any need to change this. However, this very much becomes an environment of uncontrolled market moves. The key question is whether the Fed action will be able to stop the bleeding on the credit markets and whether one could expect any coordinated action to stop the fall of the dollar. With respect to the latter, one can not exclude that central bankers will try to prevent more disorderly market moves. However, the question is whether such action has much chance of having long-term success as long as they are not backed by a change in the underlying fundamentals. The latter apparently look further away than ever. So, this very much looks like panic and erratic trading. It's difficult to give any guidance in this kind of trading but the last thing we would try to do is try to catch the falling USD knife now.
Looking at the graphs, the EUR/USD picture was already euro constructive and the break above the 1.4968/1.50 only opened the way for further euro gains. This picture hasn't changed after the (wild) swings of the previous sessions. Over the previous days, we put forward the MT moving average (today at 1.54.00) as our first short-term point of reference. A close below would suggest that there is room for some correction short-term. The fact that the actual rate moves that far away from the average is an indicator of overextended conditions. However, as illustrated over the previous sessions, this doesn't mean that the move can't go on even further. As said, we don't try the catch the falling USD-knife, even if this morning's price action has some kind of exhaustion move characteristics.
