Fear of bank nationalization of the big banks is sending stocks lower and the US dollar in tailspin. The US dollar fell off a cliff against all the currencies. The fall began at 16:45 GMT, during the time that financial stocks plunged at Wall Street. The nice gains that the dollar made during the week were erased in 15 minutes, and the fall continues. The heavy fall came near the twilight zone, when Asia is already enjoying the weekend, European markets are closing and the New York session is far from the beginning.
The USDJPY was almost flat during the Asian session and encountered heavy selling at London open (8:00 GMT) in line with EURJPY. One hour later, a reversal engulfing candle for the both currency crosses overturned the trend (see the EURJPY and USDJPY charts below). The USDJPY rally and reached 94.38 before stalling. Then things began to unravel, and quick. Sen. Christopher Dodd’s comments on nationalization turned the fears of a theoretical risk it fears of an imminent move by US government to seize two of its largest banks, Citibank and Bank of America. Traders scrambled to square positions across the board and seek the safety of the sidelines.
EURJPY stalled at 16:45 GMT but continued it upward moved.
EURUSD which was rumored to be aggressively bought by the Chinese Central Bank began to rise after it touch bottom at 1.2557. The action squeezed the EURUSD short market. Medium-term players began to cover as well after a second consecutive bounce from the 1.25 handle. Similar to USDJPY at 16:45 GMT, the EURUSD shot upward. Within 30 mins the cross soared from 1.2630 to 1.2840. Prices reached 1.2880/85 before the rally relented.
USD/JPY saw wave after wave of profit-taking as important supports all the way down to 92.80/90 were obliterated in just a few minutes time. Hopes for a topside breakout faded dramatically as 94.50 is now looking like a potential double-top on the charts. 92.51 was the spike low before a recovery to 93.30 level.
The heavy correction of USDJPY in the later part of the day more or less vindicated the trade folklore that the earlier move of the week in Asia will be reversed later in the week.
The White House on late Friday insisted it's not trying to take over two ailing financial institutions. Citigroup closed at $1.95 trading as low as $1.61. Bank of America closed at $3.79 having traded as low as $2.53.
Regardless of what Obama says, the market doubts these banks survive.
