ASIAN MARKETS CLOSED MONDAY

As some analists predicted, Lehman was left alone to dry in the sun… as only 1 out of the top 3 financial institutions in USA is left standing… “will its brick wall help it get through this market volatility”?  We will just have to wait and see. 

Something strange is happening in the streets, as ‘medium-term’ investments don’t seem to go past Sunday afternoon, and a new wave of ‘flight to safety’ is in the making…  new purchases of Us treasuries seem to be the only reason keeping the USD from falling all the way back to 1.4800 against Euro, and it seems JPY is having a little love as well as CHF because of risk aversion.  Third world countries and currencies will get a quick kneejerk and drop fast, as we have seen with the Mexican Peso/Brasilian Real, but this will all come back and strenghten those currencies, once all these turbulence is gone, and risk appetite by foreign investors return to normality.  Remember interest rate diferentials are huge compared to the 2% the FED has, and that has to pay out eventually.

Another weekend, another straw house brought down by the markets, and this time, Paulson wasn’t there to help out his buddies at Lehman, which had to file for Chapter 11, and has declared bankrupt.  The good news about this, is that Merryl was able to get aquired by Bank of America, in a $50B deal during Sunday night.  Bank of America is not as strong as it used to be and bought M.L. at $29 dlls a share, compared to $17dlls a share during its closing price in Friday.  This move seems a little bit illogical to us, because they could have bough M.L. at a far lower price if they would just sat and waited a bit longer.  This brings hope to financials in the USA, and fades away(a little bit) the sadness brought by Lehman’s death.

Keep an eye open for more volatility and rumors about AIG having problems as well. They are needing aprox $40B extra in capital, to withstand their own problems… who will they turn their pockets to next?  Will the FED lower interes rates from 2% down?  Will these problems spur economic meldows towards Europe and Asia?  The answer to all these questions seem to be: “YES” so basically stay neutral, or close to neutral on your positions.  It seems we might have a bit of a turning point and this USD rally seems to be loosing steam fast. However the multiple purshases of USTbonds seem to indicate that the USDollar will most certainly be the one that comes out of this pig-hole first in the world.  We might see high volatility in the days to come, and might be ranging betweel 1.48-1.40 for quite some time now… which seems fine by us, as market might give us a chance to go Long USD at 1.4800, and short USD at 1.4000.

Technical analysis will continue to dissapoint as the pair runs into supports but is having no problem getting past them. Turnarounds are the name of the game and high volatility spurs techies out of control…As the market calms down and the pair stops moving with such high volatility these supports will become stronger, and once again we could turn to Technicals for a direction on markets.

HIGH: 1.4600
LOW: 1.4080
CLOSE:NFI

Since Technical instruments won’t work this week, we have decided to place a weekly graph and show how EUR/USD has behaved in a medium-long term chart… we have seen the bottoming of USD, and we might now be watching a bounce of our blue resistance long term trend line… which might make the pair head towards 1.4850, or even 1.4900 before attempting to break it to the south once again…

Our analysis indicates LONG EUR/USD every time it reaches 1.4100        

• Take Profit 1:1.4300
• Take Profit 2: 1.4450