Pound Rebounds On Strong Retails Sales, Central Banks Unite To Provide Liquidity.

The major central banks announced a coordinated effort to provide liquidity to the markets with the BoE, ECB, BoJ, BoC, and SNB involved in a $180 billion infusion. The Fed authorized the auction in order to help unfreeze credit markets which have been crippled by the Lehman Brothers bankruptcy as fears have grown that more banks will fail before the crisis ends.

Talking Points
   
•    Japanese Yen: Bank Below 105 After Failed Test of 105.50
•    Pound: Rebounds on Strong Retail Sales
•    Euro: Breaks Above 1.4400
•    US Dollar: Leading Indicators and Philadelphia Fed on Tap

Pound Rebounds On Strong Retails Sales, Central Banks Unite To Provide Liquidity.

The major central banks announced a coordinated effort to provide liquidity to the markets with the BoE, ECB, BoJ, BoC, and SNB involved in a $180 billion infusion. The Fed authorized the auction in order to help unfreeze credit markets which have been crippled by the Lehman Brothers bankruptcy as fears have grown that more banks will fail before the crisis ends. The news would lead to initial bullish dollar price action across the majors, but those gains have since been erased.

The Pound saw whipsaw price action as rumors that the BoE would execute an emergency rate cut following the coordinated central bank effort led to the GBPUSD falling to support at 1.8100. An unexpected strong consumer consumption report would reverse momentum sending the Cable soaring over a 100 bps before finding resistance at 1.8250-helping the rally was denials from BoE officials that that a rate cut was imminent. Retail sales improved for a second month with a 1.2% gain in August following a 0.9% improvement the month prior. A 4.1% increase in clothing purchases led to the report printing better than the 0.5% decline that was expected by economists and gives the BoE room to leave rates unchanged for the near-term. Meanwhile, Lloyds announced the 12.2 billion pound purchase of HBOS, U.K.’s largest mortgage lender. The move was followed Hailifax Bank losing more than half its market value on the slumping U.K. housing market. The move will need special permission from regulators as it would give the bank 30% of the mortgage market. The move may bring stability to the housing market giving the central bank more reasons to leave their bias unchanged.

The Euro continued its gains from yesterday as the EURUSD broke above 1.4400 after a brief dip on the coordinated liquidity effort. The pair has found some resistance at the 20 day SMA which has served as a ceiling the past week. A clear break of this level could lead to the Euro looking to test the Fibo extensions of 1.4687 and 1.5082 as identified by Jaimie Saettele’s technical outlook.

A number of tier two indicators will cross the wires today with the Philadelphia Fed report with the most event risk potential. The manufacturing reading is expected to show a slight improvement which would be welcomed news as the New York and national reports last week showed weakness in the sector. The leading indicators report which measures the broader economic trends and their potential direction will also show that conditions are improving slightly but still skewed towards contraction going forward. However, the continued troubles of the investment banking sector and the concerns of more bank closures will continue to weigh on the dollar. The increasing expectations that the Fed will ease further has clearly reversed the greenback’s near term direction and weakness may remain until the central bank gives a clear sign that rate aren’t going lower.

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