Apa Kata Kathy Lien...

US Dollar

.... The meltdown in stocks was triggered by Lehman Brother’s warning that Fannie Mae and Freddie Mac could be forced to raise as much as $75 billion in capital to offset write downs and meet new accounting rules. Fresh trouble in the financial sector is the type of uncertainty that the market cannot handle right now. The new earnings season is about to begin and Fannie and Freddie’s problems resurrect concerns about the resiliency of US companies in the face of soaring prices and falling demand.... Normally, hawkish comments like those from San Francisco Fed President Yellen would help the dollar, but today, traders were more worried about the problems in the financial sector and how Yellen’s comments suggest that there will be no relief from the Federal Reserve.....We still believe that the US dollar has bottomed and as such, we look for more gains against the Japanese Yen and Euro.....

Euro Fundamentals...

... ECB President Trichet shocked the currency markets by saying that he has no bias about future monetary policy, sending the Euro plunging against the US dollar. The Euro came under further selling pressure after the German industrial production dropped 2.4 percent in the month of May... Cracks in the Eurozone economy are beginning to show and these problems could be exactly what prevented Trichet from being more hawkish.....We still believe that no bias equals no action in the EUR/USD so expect the 1.53 to 1.59 trading range to remain intact for the rest of the summer....

British Pound

... The UK economy is worsening which is having a big impact on the British pound. Last week economic data indicated that the service, manufacturing and construction sector all contracted in the same month. The last time this happened was 7 years ago and at that time, GDP growth slowed to 0.1 percent, the weakest level since the second quarter of 1992... The entire UK economy is slowing and the country is now at risk of falling into a recession. This has become such a serious problem that there is even speculation the Bank of England could cut interest rates ... Given current inflationary conditions, we do not think that this is possible, but we do believe that the British pound will continue to trend lower ahead of the meeting. GDP growth should continue to deteriorate in the coming quarters, making the Bank of England’s job even more difficult....

Trouble Ahead for the Japanese Economy?

Japan’s economy is crumbling under the weight on higher oil prices because they import nearly all of their oil needs. According to BoJ Governor Shirakawa, the surge in commodity prices could lead to lower profit and weaker growth and because of that they will remain on hold for the foreseeable future....

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