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Brian Dolan" X/ f5 u. N+ J4 Z4 P% Z1 E: U
Chief Currency Strategist - Q5 d( L) F7 u9 t! S/ D) K
( C% I- f J1 [( W' e5 M1 Z3 yLatest Crisis of Confidence - GSE's, Banks, and the U.S. Dollar
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(July 14, 2008) We are in the midst of the umpteenth (I've lost count) market crisis of confidence since the sub-prime credit debacle began a little over a year ago. While I believe the current episode is nothing more than an extended phase of market hysteria, I'm also reminded of the old market adage that markets can stay irrational longer than most investors can stay solvent. In the current turmoil, the USD has slumped to near all-time lows against the Euro and has lost considerable ground against other currencies as well. However, I am not one to panic very easily, and I see an opportunity to buy cheap USD in the current environment. Readers should note that my view is currently counter-trend, and therefore not without risks.
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1 D* ? @5 x& Q1 c W7 }4 R9 g2 fThe latest go-round in market panic started last week on fears that key government sponsored enterprise (GSE's) mortgage lenders lacked sufficient capital to withstand the ongoing US housing downturn. Over the weekend, the US Treasury stepped up and, with congressional approval, advanced a plan to restore confidence in the two main GSE's. The point was clear-the US government will not allow the GSE's to fail. In time, hopefully before the end of this week, I believe the government's plan will succeed in stabilizing market sentiment, at least as far as the GSE's are concerned, and see the current USD negative atmosphere begin to clear. ^" L. Z' o# N1 n( Y
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One of the main reasons I view this current phase of USD weakness as likely to remain limited is that the last thing the US and others need is a runaway train in the form of a USD crisis. It's right and natural that there should be a meltdown in financial shares given the underlying environment and the government appears content to let that play out within reasonable confines. However, a sharp breakdown in the USD at this stage, with oil hovering just below $150/bbl, threatens to unleash a crisis of confidence in the greenback that could make the current turmoil, both economic and systemic, look like a walk in the park. Were markets to get the sense that Treasury and the G7 were prepared to let the USD collapse, the fallout would be disastrous to the global economy. If you think oil at $145/bbl is wreaking havoc, imagine what happens at $165 or $175. For that reason, I expect intervention to curtail USD weakness much beyond the all-time lows/ highs in EUR/USD just above 1.6000. 7 T. ] e7 ]5 l! {
- P7 p f7 A* f" f! b: ~ N5 NOutside of market fears, the fundamental picture for the USD is firming up within the overall context of a slowdown, i.e. slowing less severely. At the same time, growth outlooks elsewhere (Eurozone and UK in particular, but also Japan) are deteriorating more rapidly. Tomorrow's Eurozone and German ZEW sentiment surveys will be the latest update for the Continent, while the UK sees RICS house prices and BRC June retail sales monitor . Also tomorrow, we get Fed Chair Bernanke's semi-annual update on the economy, which we expect to be relatively hawkish on inflation and somewhat more upbeat on the US outlook for the rest of 2008 and into 2009. In a break with tradition, he will be joined by Treasury Sec. Paulson and SEC chief Cox, who are expected to elaborate on the GSE backstop plan and financial market oversight. % N1 I$ @9 }7 `% }+ I& _* W6 F
. S. M/ Q/ q% X' s" V0 A/ J' n ]While I do expect the USD to recover from this current bout of market jitters, I will not go down with the ship. If EUR/USD were to see a daily close above 1.6050, I would take it as a signal that Treasury was prepared to tolerate additional USD weakness. EUR/USD closing back below 1.5780/90 would be a strong signal that the current crisis of confidence had passed and that the anticipated USD recovery was underway. In USD/JPY, the 104.70/105.00 level below is the critical support zone that must hold on a daily closing basis to prevent further USD weakness. A daily close above 106.70 would signal the worst has passed. & t3 A7 n* y( D2 B" @- W
9 {% ?7 J; ]- v W9 O0 KDisclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. |
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发表于 2008-7-15 14:19
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发表于 2008-7-15 19:02
