Forex Investment and Currency Trading

The move by the ECB to access the FX forward market and to accept a wider range of collateral should bring the FX forwards back to relatively normal levels in the next few weeks. Three month EUR/USD forwards are negative again for the first time in three weeks (last week of September was the last night we had consistent negative points). 
Immediate reaction by the FX forward market to see 3M forwards in EUR move from +7.5 to -5 – still not where it should be in theory but more accurate and clearly moves USD arbitrage pressure lower.  Implication for FX market may be that EUR can be bid up again to test 1.3850 should US assets get even worse.  But that is a speculation.  11 am fixing process like yesterday has been mostly USD positive.  Noise factors in all markets dominate.

NEWS
ECB expands list of assets eligible as collateral – FX Forwards included. The European Central Bank will allow banks to swap a larger range of their assets for central bank funds and offer extra U.S. dollar liquidity through foreign exchange swaps, the central bank said on Wednesday.  In its latest bid to tame the financial market crisis, the ECB lowered its threshold for accepting assets to BBB- from A- and said it would accept assets denominated in foreign currencies and debt instruments issued by credit institutions, among other changes. It will charge an extra risk margin on the newly eligible assets and said the new rules on collateral would remain in place until the end of 2009. “The expansion of the eligibility criteria announced today will be combined with vigilant monitoring of the use of the framework,” the ECB said in a statement. The ECB will also offer unlimited funds in its longer-term refinancing operations at a fixed interest rate and offer banks extra three- and six-month funds. For the first time, it will also offer U.S. dollar funds through foreign exchange swaps from Oct. 21, promising to meet all bids.