The market remains Dollar bearish but concerns over the potential credit crunch are preventing the Dollar from falling too far. We now have a U.K. Times Newspaper article which claims that State Street Corp is holding $22bn worth of asset backed commercial paper conduits and is encountering funding problems to some banks over the past few weeks. According to regulatory filings State Street has credit lines to at least six conduits, which account for 17% of its total assets and this makes it the most highly exposed bank to conduits amongst all U.S. and European Banks. While I have not been able to find the document, it is also claimed that on the Fed’s web site there is a document that states that the Fed is explicitly exempting a large U.S. bank from its normal funding exposure limit (10% of bank's capital) to an affiliate, in this case a brokerage. So not a healthy state of affairs at the moment and serves to remind that a second round of nerves can be triggered at any time. There hasn’t been any reaction to Abe’s cabinet reshuffle. Predominantly he has reverted to plan B in which he has re-instated the old guard in an apparent effort to woo the voters. It’s a shame that no one has told him that the public has become disillusioned to the old system in which nothing ever changed. This has been highlighted further by the battle between Yuriko Koike who was a new cabinet appointment as defense minister. However, there has been a widely reported battle between Koike and the resident secretaries which forced her to resign from the role. This story reminds me of the old U.K. comedy series “Yes Minister” which portrayed the concept that it is the ministry’s secretaries that run the show and not the minister himself. Basically, for all Abe’s changes, read “no change.” The following economic releases are due today: July
Swiss UBS Consumption Indicator
Euro-zone M3 Money Supply (YoY) 11.0% August
German IFO: Business Climate 105.4
German IFO: Current Assessment 110.7
German IFO: Expectations 100.2
U.S. Consumer Confidence 105.0
U.S. Richmond Fed Manufacturing Index 1.0 The minutes of the August 7th FOMC meeting are due to be released In the absence of any particularly strong desire to push the Dollar one way or another yesterday turned out to be fairly uneventful. It is quite usual for day like yesterday for the market to really push the limits of support & resistance to the full and this can open up some ambiguity in the wave structure. However, what it normally also does is identify the key break areas and this does seem to have occurred overnight, even extending into this morning’s early Asian session. I had written down the lowest support I could accept while the Euro and Pound still have upside potential and that is exactly where they bounced. The only issue I have is the position within the wave structure in terms that it is unusual (though not impossible) for such a deep pullback at this stage. Frankly within corrections this sort of thing does occur. I have this nagging preference to see both Pound and Euro make one more high while the Swissie does seem to suggest it needs to push down below the 1.1992 level, but not by too much I feel. If this morning’s supports in the Euro and Pound give way it suggests the upward correction can continue for a little while longer but will first require the decline to edge a little lower. Equally Dollar-Yen still hasn’t managed to push above the 117.12 resistance and the depth of the decline does have a slight look of requiring a little more consolidation so it seems we may need to have a little more patience, but the upside is definitely the weaker side and it’ll give way before long. We just need to identify the likely reversal area. Note important support and resistance areas: USDJPY EURUSD USDCHF GBPUSD
Res: 116.74-12 1.3734-39 1.2130-60 2.0138-65
Res: 115.80-00 1.3664-84 1.2046-65 2.0090-00 Spt: 115.14-35 1.3602-16 1.1992-04 2.0005-27
Spt: 114.15-52 1.3539-67 1.1947-65 1.9900-20 | 
