Just when you think a trend has been established, the market throws you a wrench and totally changes the whole picture. Before the markets even opened, the Bear Stearns saga hit its highest note, with JP Morgan offering $2 per share for Bear Stearns, and the latter accepting, mainly because the only other option was Bankruptcy.
On Tuesday after the much anticipated FOMC rate cut, the US dollar rallied on what analysts called a clearer picture from the Federal Reserve, and that they are almost at the end of the tightening cycle. Commodities took it on the chin, most contracts losing more then 10% this week, with gold falling from the $1030 high it touched on Monday, to trade currently as low as $910 per troy ounce. They were not the only ones who took a big hit, currencies had their much anticipated correction, with the Euro falling more then 300 pips in a 48 hour period.
What was lost in all this sea of red was the fact that equities in North America actually had a week of positive results. The Dow Jones ended the week up almost 200 points, mainly on the help of a late Thursday upgrade of Fannie Mae and Freddie Mac by an analyst. The late Thursday gains should translate into a higher open on the FTSE when it comes back from the Easter holiday.
Since there was not much economic data out last week, the market was prone to rumors. HBOS and Lehman Brothers both suffered on rumors that they were in a liquidity crunch, and are the next ones to fail. Both rumors were proven false, but not before both stocks fell more then 10%, with Lehman falling as much as 40% before correcting.
The strength of the US dollar wasn’t because of a change in fundamentals. We are expecting for the correction to wane and as a result here is this week’s play. Traders at BetOnMarkets.com predict that a ‘No touch’ on the Euro/USD for 11 days, 536 basis points below the current spot, could pay ROI 8%.
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