Forex Investment and Currency Trading

• WSJ: Toxic-Asset Plan Sends Stocks Soaring. Dow Jumps Nearly 500 Points on Unveiling of Public-Private Program to Buy Up to $1 Trillion in Soured Loans and Securities. Stocks surged world-wide after the White House formally unveiled its plan to clean banks’ balance sheets, with an emphasis on luring private investors to buy up to $1 trillion in toxic assets that are choking the flow of credit. The Dow Jones Industrial Average soared 6.8%, or 497.48 points, to 7775.86, in its biggest gain since late October. In early trading in Tokyo Tuesday, stocks were up 2%. Among some investors, the reaction seemed more a sigh of relief at seeing some details of the program, after weeks of waiting, than an overwhelming endorsement.
• WSJ: Obama Dials Down Wall Street Criticism. The Obama administration, after months of criticizing Wall Street, has been scrambling to woo top bankers and financiers to back its latest bailout plan. But weeks of searing criticism by politicians and the public had left bankers leery of working with the government. After brainstorming about what to do about that problem, the White House resolved to try to take control of the debate, according to several administration officials. In weekend television appearances, President Barack Obama and other administration officials tempered their criticisms of the financial sector.
• NY Times: Rescue Plan, With Some Fine Print, Dazzles Wall Street. This time President Obama directed some of the stagecraft. This time Treasury Secretary Timothy F. Geithner fleshed out the substance of their long-anticipated program to remove banks’ toxic assets and revive the financial system. And this time the reaction was widely positive, giving the embattled Mr. Geithner a critically needed boost. Much still needs to be done to execute the plan. It drew criticism in some quarters for not being aggressive enough in addressing the bad assets weighing down the financial system, and from Republicans on Capitol Hill for leaving taxpayers too much at risk.
• Reuters: Nobel laureate Krugman slams Geithner bailout plan. Nobel-prize winning economist Paul Krugman said in remarks published on Monday that the latest U.S. Treasury bailout program is nearly certain to fail, triggering a sense of personal despair. U.S. Treasury Secretary Timothy Geithner on Monday unveiled a plan aimed at persuading private investors to help rid banks up to $1 trillion in toxic assets that that are seen as a roadblock to economic recovery. “This is more than disappointing,” Krugman said. “”In fact it fills me with a sense of despair.” “The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt,” the Princeton University economist said, citing weekend reports outlining the plan.

USD/CAD is trading at the lower end of its recent 1.2200/1.2600 range this morning, after both London and Asia tried to take USD/CAD through 1.2200, but with no success. Initial selling in Asia was spurred on by an improved appetite for risk, and good demand for AUD/JPY and GBP/JPY helped to push USD/CAD lower.

With no Canadian data on tap until next week, the attention is turned to short-term flows, headlines, and equities. Momentum is still pointing downwards in USD/CAD, and traders suspect that the 1.2300/25 level should keep us capped for the time being. The 1.2190/1.2200 level will be the first key level of support on the downside. A break of this level opens up 1.2000/25 as the next target.

It looks like yesterday’s incredible US bank plan-induced rally came to an end overnight. After yesterday’s ~7% gains in both the Dow and the S&P indices, and the 3% gain in Asian equities overnight, European equities are near flat, and S&P futures are in the red. Overnight the biggest underperformer was the yen, as the Asian session saw some significant selling of yen on the crosses, and the tradeweighted JPY index hit a multi-month low.

Sterling gained some ground overnight after the stronger than expected CPI report, which popped back above 3%, forcing Governor King to write a letter of explanation to the Chancellor. In Governor King’s remarks before the Treasury Select Committee this morning, he emphasized that although the February CPI rise looks particularly concentrated in industries related to imports, the big picture is the downward impact on CPI from spare capacity. On the topic of Sterling, Governor King said that although the fall in Sterling is part of rebalancing the UK economy, there’s no reason why Sterling should go any lower. The MPC was typically pretty careful in the past about not mentioning the GBP too much, implying that they were happy to see the currency weaken. But now that inflation is appearing to be a bit of an issue, the MPC may be concerned that too much more weakness in GBP would bring about a period of stagflation. The UK has one of the highest inflation rates in the G10, as well as one of the most aggressive monetary stances, so while we agree with Governor King about the big picture and economic slack, the MPC may be worried about keeping inflation expectations contained if inflation remains this stubbornly strong.