Does the Congressional vote on the Paulson plan still matter?

Foreign Exchange Currency Outlook :

Does the Congressional vote on the Paulson plan still matter? Yes.

It’s a bad plan but better plans are not available for immediate action, and the top officials are telling us immediate action is needed. Let’s assume the plan gets passed this week. Meanwhile, the liquidity crisis in Europe will probably weigh on the euro exchange rate, so we have both a positive and a negative reason to see the US dollar exchange rate higher. It’s sad to say so, but “worse conditions elsewhere” are indeed saving the US Dollar. This will likely continue, too. Economic data from Europe is not good and seems to point to increasingly recessionary conditions—but the ECB is likely not to respond with a interest rate cut.

As for hard data, it’s taking such a back seat it’s in the trunk of the car, but it can move the market, too, especially when it’s payrolls, the single biggest market-mover we have among all the data. We get it Friday morning. So far we have layoffs from Challenger, Gray today, up 95,094 in September from 88,736 in August. Nobody thinks the payrolls rate can be much better than 100,000, although we get the usual private sector estimate from ADP Macro today.

The US Dollar exchange rate may thrive on the grounds that the US is too big to fail and besides, it will come out of a recession faster than anyone else, even if the rescue plan is a bad one.

We have serious doubts about this reasoning, but never mind--things are worse in Frankfurt today than in New York and maybe even Washington. At least the US has a single government and is the issuer of the one currency everybody needs right now.

The contraction of the US banking sector is something the rest of the world’s banking sectors failed to plan for properly.

Golly, what will happen when China comes back from its National Day week-long holiday next week?

Some had suspected China would pull out of the US dollar as its main reserve currency. Now it’s looking like they will be scrambling to buy US Dollars like everybody else.

This is kind of fun, you have to admit.

We are getting more ocmfortable with a long US dollar posture.

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Barbara Rockefeller - Forex Trading Reports

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