* Credit conditions remain extremely tight
* Risk aversion remains high
* Equity market recovery looks suspect
* Waiting for the next wave of position unwinding
* ECB, BOE, and RBA all expected to stay on hold

Major currencies spent another week see-sawing in relatively wide ranges as markets continue to assess the fallout from the sub-prime mortgage meltdown and its aftershocks. The USD (in US dollar index terms) looks set to finish out the week mostly unchanged, while stock markets survived a mid-week sell-off and look set to post modest gains on the week. However, judging by the S&P 500 index, stocks appear unable to surpass last week’s highs at 1480 and this could be a bearish sign for stocks to start the new month. (Please note, this report was prepared around noon EDT Friday, without the benefit of weekly closing price levels.) A similar weekly price pattern is evident in the JPY-crosses, with 159.60/70 in EUR/JPY serving as the key weekly high. In short, what I’m seeing on the charts is that stock markets and carry trades (JPY-crosses) have stabilized further, but are unable to extend the correction higher. In market terms, buyers continued to emerge on dips, but they’ve either run out of steam at the weekly highs, or sellers are in abundance there, or a combination of both. In general, that keeps the downside in focus. I would also note that equity market volumes were extremely light in the past week, making the attempts to rally even more suspect.  Full text »

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About the Authors Kathy Lien is the Chief Strategist at Forex Capital Markets LLC. Kathy is responsible for providing research and analysis for DailyFX, including technical and fundamental research reports, market commentaries and trading strategies. A seasoned FX analyst and trader, prior to joining FXCM, Kathy was an Associate at JPMorgan Chase where she worked in Cross Markets and Foreign Exchange Trading. Kathy has vast experience within the interbank market using both technical and

* Is it safe yet? Relief does not spell end of concerns
* Looming interest rate decisions from BOE, ECB and Fed
* Heavy data calendars all around
* Trichet speaks on Monday morning; Bernanke Friday

What a difference a week makes. Last Friday the Fed came to the rescue and cut the discount rate in an effort to soothe rattled credit markets. The move appears to have worked, at least for the moment. In the ensuing calm this week, equity markets recovered and currency markets reverted to old habits-selling the USD and buying JPY-crosses (the carry trade). This week was notable for the absence of any significant data reports, meaning the market was left to trade primarily on sentiment and technicals. As the flow of negative credit news abated, again for the time being, sentiment was able to recover, bargain hunting followed, and as prices stabilized, momentum traders added to the recovery.  Full text »

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* Fed discount rate cut unlikely to end volatility
* More bad news is out there and ready to surface
* No rate hike expected from the BOJ
* ZEW for Germany and Eurozone may be very weak

What a week, to say the least. Equity markets plunged across the globe as investors panicked in the face of reduced credit availability, which accelerated de-leveraging and the unwinding of higher-risk positions. (De-leveraging refers to scaling down the size of position to a lower percentage of assets under management. In short, it means positions are sold sizes across all asset classes.) In the currency market, JPY-crosses (EUR/JPY, AUD/JPY, GBP/JPY, NZD/JPY) fell out of bed as carry trades continued to be unwound.  Full text »

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* Market volatility set to persist
* JPY-crosses building for a decisive break lower
* US Equity markets have shifted to a downtrend
* What bad news is next?

Financial market turmoil continues unabated with the major development this week being the evaporation of lending in the inter-bank market, necessitating liquidity injections from the world’s leading central banks. The proximate catalyst for that was the announcement on Thursday by BNP that it was freezing redemptions because it could not accurately value the assets held in three asset-backed securities (ABS) funds. Liquidity injections were needed again on Friday as banks demanded interest rates well in excess of central bank benchmark overnight interest rates for a second day in a row. For example, Fed funds opened on Friday at 6%, 0.75% higher than the Fed funds target rate. The Fed added liquidity, in three separate operations, to bring the rate back to the target level of 5.25%, while also opening the discount window, the Fed’s last-resort lending facility. I don’t know yet whether any banks had to go to the discount window (probably not given the Fed’s repeated repo operations), but if any have it’ll lead to another ratcheting up of credit concerns.  Full text »

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* Credit concerns and risk aversion continue to grow
* Stock finish out on the lows, bounces unsustainable
* Carry trades finish out generally higher, but still heavy
* FOMC meeting on Tuesday, RBA on Tuesday evening EDT

The dollar is finishing the week lower against other major currencies, after a nervous and choppy week of trading. Throughout the week, the USD (in US Dollar index terms) was mostly steady amid the turmoil, and the weakness all came on Friday in the aftermath of weaker than expected July NFP jobs gains and ISM non-manufacturing readings. But the dollar was mostly a sideshow to the on-going uncertainty and disarray in the credit markets, which kept equity markets nervous and off balance. The DJIA looks set to close on new lows for this move down, while the broader S&P looks set to go out on four month lows.  Full text »

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