The degree of difficulty of getting a clear read of the currency markets is particularly tough today given a variety of factors impacting the markets. Dollar negatives include the still-unresolved situation at Lehman Brothers as US financial markets focus on their fight for survival. Even if that matter were favorably settled, the market would simply turn their focus to the next sickest firm, just as it did in turning from the GSE bailout on Monday to Lehman’s health Tuesday. Making this a difficult situation to trade is the fact that EUR/JPY tends to sell off when risk aversion rises, so EUR/USD becomes choppier than normal.
Oil prices are a factor today, as always, with OPEC trimming production a bit over 500,000 barrels per day. Ike is still headed for the Gulf and could skirt the oil and gas region.
The macro picture remains dollar supportive however as capital continues to flow rapidly out of emerging markets and back into developed markets, particularly in the US. Amplifying this effect is intervention from the likes of South Korea and Russia to prop up their local currencies and sell dollars. They then turn around and buy dollars against major currencies like the euro to maintain their reserve-asset mixes.
A broad consolidation in the 1.40/1.4250 range is favored against this unsettled backdrop.