Dollar Gets Smacked By Fannie Mae

Just last week dollar’s rebound looked promising, but yet as we enter the second trading day of the week, dollar’s upside momentum is slipping away. The main catalyst of dollar’s decline today has been the bigger-than-expected loss by Fannie Mae, US’s biggest mortgage lending company, reigniting fears that we haven’t seen the worst of the financial market turmoil. The company reported a first-quarter net loss of $2.19 billion, or $2.57 a share, compared with a loss of 64 cents a share, and said it expected its credit losses to be significantly higher next year than in 2008. Fannie Mae also said it will need to raise $6 billion in capital. This kind of negative news, coming hot on the heels of not-so-bad GDP and not-so-terrible payrolls, is a jolt to overall market sentiment and confidence, and a reminder that more pain could be in store for the economy, something which Warren Buffett had said over the weekend.

Alien Talk 

And speaking of Buffett, he has been hogging headlines lately with his Berkshire’s annual general meeting and numerous interviews. During the AGM, he even made fun of the US dollar, a currency which he said he has been shorting since 2002, saying even aliens won’t want to keep US dollars. He said, “If I landed from Mars today with a billion Martian dollars, or whatever they call them, went to the local bank near where my UFO landed, and they asked what would I like, I don’t think I’d put my money in the US dollar.” His outer-space remarks come at a time when a sustained dollar recovery seems to be a possibility, though a vulnerable one. For traders, their perspective is more short-term and opportunistic, unlike Buffett’s long-term view, so his comments may not have much of an influence, short-term wise, in the fickle currency markets.

Fisher the Hawk

Dallas Fed President Fisher, one of the two dissenters to last week’s rate cut, said a dramatic slowdown would be needed to justify more rate cuts, and that the Fed policy has already discounted significant “anemia” in the US economy. He sees risks on both sides of the economy.

Forex Trading

Today’s data has been helpful to the Euro: Eurozone producer prices rose 5.7% from a year ago, the most since August 2006, after gaining 5.4% in February. EUR/USD rose to a high of 1.5600. If it breaks successfully above 1.5610, it may target 1.5640, then 1.5680-1.5700. USD/CHF could slide towards 104.00, then 103.50-60. For now, the sour taste of Fannie Mae’s woes stays with the US dollar.

Wednesday:

UK industrial production 0830 GMT

Eurozone retail sales 0900 GMT

US MBA mortgage applications 1100 GMT

US pending home sales 1400 GMT

New Zealand employment 2245 GMT

UK NIESR GDP estimate 2301 GMT

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