Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Central Banks Liquidity Boost Gives Temporary Lift to the US Dollar and Stocks

Currencies / Financial Markets Mar 12, 2008 - 02:33 AM GMT

By: Ashraf_Laidi

Currencies Best Financial Markets Analysis ArticleFederal Reserve inaugurated its Term Auction Facility (TAF), the central bank invents a new liquidity driving mechanism calling it Term Securities Lending Facility (TSLF) through which it lends $200 billion to its primary dealers. Recall, the Fed had just extended its lending facilities to 28 days after Friday's dismal labor report.


Tuesday's coordinated interventions by the Federal Reserve, Bank of Canada, Bank of England, Bank of Japan and bank of Swiss National bank have delivered the short-term equivalent of an inter-meeting Fed cut via the impact on overall market liquidity and resulting increase in risk appetite. The dollar soared across the board as markets eliminated all chances of a Fed inter meeting rate cut, thereby, sparing the currency from further yield erosion from the US central bank. This means the most likely outcome is for the Federal Reserve to stick to a 50-bp rate cut at its scheduled FOMC meeting next Tuesday.

Nonetheless, in light of the increased chances of a US recession, broadening losses in equities and the strong fundamentals in the Eurozone, today's dollar rebound will be short-lived largely against the euro and the yen .

We should remember that the EURUSD hit a fresh all time of $1.5495 following further evidence of improvement in German business confidence. The ZEW investor expectations index improved to 5-month high of -32 in March from -39.5, one week after the IFO index hit a 3-month high in February. The reports are a strong illustration of superior fundamentals, relative to the Fed-driven USD gains, which are unlikely to last. The ZEW survey solidifies the euro's broadening rally by dampening expectations of an ECB rate cut and further damages sentiment in the dollar .

Short-term EURUSD outlook sees downside extending towards $1.5260, followed by 1.5220, at which point we expect renewed gains in the pair ahead of the Fed's anticipated 50-bp rate cut. Upside is seen extending towards $1.5340, followed by the $1.5390-95 region.

Remember December 12th and March 7th?

Just a few days after Friday's post-labor report announcement from the Fed to raise the amount of liquidity in its TAF auctions to $100 bln to "address heightened liquidity pressures in term funding markets" , the Fed steps in with a fresh announcement to increase lending by $200 billion. Separately, the ECB has issued a statement indicating it is willing to provide extra dollar liquidity, as it did back in January 22 and Dec 12. Indeed, December 12th was the day to remember, which triggered the US central bank to step inaugurate its Term Auction Facility (TAF) after it had disappointed markets the preceding day (Dec 11) with only a 25-bp rate cut. Despite the Fed's announcement and the ECB's injection of more than $500 billion in liquidity, the resulting stock rally lasted no more than one day (see chart).

The chart also shows that markets are more likely to make a prolonged rally following interest rate cuts -- which aim at lowering the benchmark target of the cost for loanable overnight funds, rather than following term lending facilities that aim at preventing liquidity from falling further.

These liquidity-injection operations may help stabilize the normal functioning of credit markets but will neither soften the loosening in the deteriorating jobs market nor lower the increasing burden on consumers' falling purchasing power in light of rising oil, and negative real average hourly earnings growth .

 

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in