Forex Investment and Currency Trading

The bounce back in equities has provided a modicum of comfort to those fearful of a larger panic.  The bounce has its roots in actions from Ireland – where banks have the government backing up their debt, France, which also backed banks debt, and in value hunters who argue that even in a recession US shares are at attractive P/E levels (assuming E is just 20% or lower from the S&P500 $90-ish peak.).  There is also an expectation that the US will come up with some sort of plan-B and that if it gets worse the FED and others can cut rates or take out some new tools from their huge tool kit.  That may be optimism but it’s a welcome relief to the pessimism that dominated.  Watching this market however – there are still some significant signs of distress – US Libor fixed at 6.88% for overnight up from 2.57%. Euribor fixed at new highs 5.05%.  The global bank system isn’t taking the FED swaps and trading properly. FX Forward markets remain in disarray with liquidity outside of 1W difficult.  Rate cuts won’t fix the bank to bank mistrust.  The action of the Irish may be a better step – but hard to see it spreading so quickly or easily globally.  Calls for an emergency G7 meeting suggests that the tool kits globally are in play – and that is the hope that keeps today’s market stuck together. What follows is that belief in value and long-term investing – hard to do when you can’t fund it.  The month-end fix today in FX will be an event.  The USD buying overnight was substantial and it may turn on the clock as those that needed September 30 funding will be finished.  But this crisis has yet to be understood for its effect on the real economy – which is what the data stream from the US will show – and that may be something to fear as markets struggle to price recession and reaction to it.