10 Sep 07

Should and will Fed reduce interest rate and by how much?

Last Friday, we saw another great fall in the stocks market and this time it was triggered by a mere loss of 4000 jobs instead of the expected 110000.

My personal feeling was that the last market woes on the sub-prime was due not to poor lending, but more fundamental - employment. Unemployment leads to loss of jobs and income and therefore a failure to repay loan or even take any re-financing scheme. The results will be more re-procession of housing and that will trigger a cycle of cuts and spending.

The Fed should reduce interest rate to save the high housing loans, but a reduction also signal the coming of a recession - how? Check mate?

Fundamentally, it now a wait and see game.

Short term, with the GBP go north last week, I will forsee a southward direction. It not my favour in any direction, but I believe the market will move cautiously and any movement in any direction will be offset very fast.

A good resistance line is at 2.0330 and a a good support at 1.9957.