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Fannie Mae and Freddie Mac’s developments continue to drive the price
action for the currency market. Despite Paulson’s announcement yesterday that he will be seeking Congressional Approval for the authorization to buy stock in Fannie and Freddie and a higher credit line, currency and stock traders are still not convinced that this is enough. On Friday, Fed Chairman Bernanke announced that Fannie and Freddie could tap into the discount window.
As the Wall Street Journal muses in this morning’s paper “Are the Hunters Low on Magic Bullets?”
There are 5 major event risks that will affect the US dollar this week:
1. Fannie Mae and Freddie Mac will continue to dominate headlines. Watch out for more comments by the US government
2. Earnings! JP Morgan, Merrill Lynch and Citigroup are all reporting earnings this week. With the failure of IndyMac, more trouble could be in store for the financial sector
3. Bernanke delivers his semiannual testimony on the Economy and Monetary Policy Tuesday and Wednesday. Although he will remain hawkish on inflation, he will receive serious criticism for more action during the question and answer session about the continual strains in the financial markets and the slide in US equities.
4. Retail Sales will be released on Tuesday. The level of consumer spending will play a big role in the outlook for the US economy
5. Inflation, inflation, inflation. Producer and consumer prices are due for release this week – softer inflation pressures could reduce the chance of a rate hike by the Federal Reserve.
It will be a very busy trading week in the foreign exchange market!