SIFU AMIN
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Here's a broad view in bullet points for your reference.
1. The bail out means the govt now assumes responsibility of the housing debts guarenteed by Fannie and Freddie ==> This will increase the risks on the US Treasuries
2. this could also remind the market that the US problems are not over ==> We could see EUR and GBP rebounding again. The market may have moved too much to trading the negatives from Euro-zone in recent weeks, ignoring the still-weak US fundamentals. This may balance out that market's focus a little
3. But this could be good for the US housing market, which may eventually be positive for the USD. In my mind, one way for the USD to rebound strongly is if the housing market recovers, thus ending the stress on banks who can then lend again. When banks lend, consumers can spend again and the economy can recover. But that is a multi-month positive.
4. For now, the USD must first endure uncertainties over its ability to handle any large amount of debt defaults should that happen.
In summary, we could see GBP and EUR recovering against the USD for the short-term. But if the US banks start lowering lending standard (watch Fed Senior Loans Officers Survey on banks' lending standard) and start lending again, we could see the USD recovering strongly against the EUR and GBP, who both have their own housing market issues in their own backyard.
Trading implications? For intra-day i wouldnt mind buying EUR or GBP but for multi-day, I wouldnt bet against the USD. I think there are greater upside for GBPJPY and EURJPY than EURUSD and GBPUSD in the next 1-2 weeks.
Hope that helps.
