by Korman Tam
The dollar sold off sharply at the start of the week, plunging from 1.3349 to 1.3702 against the euro – its lowest level in two months and falling just shy of the 1.54-handle versus the sterling. US economic data released earlier in the session were largely in line with consensus estimates. The December NY Fed manufacturing survey was slightly better than expected at -25.76 from -25.43 a month earlier. Industrial production posted a 0.6% decline in November, compared with a 1.3% increase a month earlier and capacity utilization was unchanged at 75.4%. Meanwhile, the NAHB housing market index for December held steady at 9.
The FOMC kicks off its two-day monetary policy meeting and will announce the results on Tuesday at 2:15 PM. We look for the Fed to cut its benchmark lending by 75-basis points to 0.25%. The key highlight will be the accompanying Fed policy statement, in which it is likely to acknowledge the current recessionary landscape. Moreover, markets will look for guidance on whether interest rates may be lowered to zero. The greenback could benefit if the Fed signals a reluctance to ease its benchmark lending rate to zero.
Tuesday, December 16, 2008
Monday, December 15, 2008
Ahead of the week - Key Technical levels
EURUSD – This pair broke its 6 weeks trading range to the upside, and has now clearly closed above that range.
If the fundamentals will continue to support the upside, it might head to test 1.3690 in the next week or two. However the next resistance area is around 1.3500, any trouble advancing above this area might bring the current up move to a temporary halt, or even reverse direction. We can declare the current up move officially dead if EURUSD will mange to trade well under 1.3 in the next week or two.
USDJPY– still recovering from a sudden drop to a 13-year low at 88.15.
The question remains- was this drop just a panic reaction of the market to the rejection of the US Automaker bailout plan? Or is there more then just panic to that move.
We can find out how serious this pair is about dropping further if the market will manage to make another run to the 90 psychological support level, otherwise we will probably be back to trade between 92 and above as we move further into the week.
GBPUSD- unlike EURUSD, this pair did not break its trading range last week. The only thing it managed to do was to move merely 60 pips higher from its open on Dec 7.
This had a lot to do with the strengthening of the EURGBP last week, which is trading in record highs right now. However it is possible to see this pair well above 1.5 if only EURUSD will be able to maintain its power to the upside.
If the fundamentals will continue to support the upside, it might head to test 1.3690 in the next week or two. However the next resistance area is around 1.3500, any trouble advancing above this area might bring the current up move to a temporary halt, or even reverse direction. We can declare the current up move officially dead if EURUSD will mange to trade well under 1.3 in the next week or two.
USDJPY– still recovering from a sudden drop to a 13-year low at 88.15.
The question remains- was this drop just a panic reaction of the market to the rejection of the US Automaker bailout plan? Or is there more then just panic to that move.
We can find out how serious this pair is about dropping further if the market will manage to make another run to the 90 psychological support level, otherwise we will probably be back to trade between 92 and above as we move further into the week.
GBPUSD- unlike EURUSD, this pair did not break its trading range last week. The only thing it managed to do was to move merely 60 pips higher from its open on Dec 7.
This had a lot to do with the strengthening of the EURGBP last week, which is trading in record highs right now. However it is possible to see this pair well above 1.5 if only EURUSD will be able to maintain its power to the upside.
Saturday, December 13, 2008
USD Plunges on Data
by Korman Tam
The dollar plunged in Thursday trading, falling to its lowest level in nearly 2-months against the euro at 1.3405 and yen at 91.15. Prompting the steep sell-off in the greenback was a set of dismal US economic reports – which included weekly jobless claims and the trade balance figure. The weekly jobless claims report unexpectedly surged to its highest level in 26-years at 573k, worst than the 525k forecasted and sharply higher from the previous week at 509k. Meanwhile, the October trade deficit ballooned to $57.19 billion versus calls for an improvement to $53.5 billion from $56.47 billion in September.
Safe haven flows jumped into spot gold, pushing it to a two-month high at $833 per barrel. Meanwhile, US equities struggled across the board with the Dow Jones slumping by 2.24%, the Nasdaq sliding 3.68% and the S&P 500 losing 2.85%.
The US economic calendar on Friday will be closely scrutinized with traders looking at November retail sales, PPI and the December University of Michigan consumer confidence survey. The headline November retail sales is expected to improve to -1.9% from -2.8% from October, while the excluding autos figure is seen improving to -1.7% from -2.2% a month earlier. The November PPI is expected to decline by 2.0%, compared with a 2.8% decline a month earlier. The University of Michigan consumer confidence index is seen drifting slightly lower in December to 55.0 from 55.3 a month earlier.
The dollar plunged in Thursday trading, falling to its lowest level in nearly 2-months against the euro at 1.3405 and yen at 91.15. Prompting the steep sell-off in the greenback was a set of dismal US economic reports – which included weekly jobless claims and the trade balance figure. The weekly jobless claims report unexpectedly surged to its highest level in 26-years at 573k, worst than the 525k forecasted and sharply higher from the previous week at 509k. Meanwhile, the October trade deficit ballooned to $57.19 billion versus calls for an improvement to $53.5 billion from $56.47 billion in September.
Safe haven flows jumped into spot gold, pushing it to a two-month high at $833 per barrel. Meanwhile, US equities struggled across the board with the Dow Jones slumping by 2.24%, the Nasdaq sliding 3.68% and the S&P 500 losing 2.85%.
The US economic calendar on Friday will be closely scrutinized with traders looking at November retail sales, PPI and the December University of Michigan consumer confidence survey. The headline November retail sales is expected to improve to -1.9% from -2.8% from October, while the excluding autos figure is seen improving to -1.7% from -2.2% a month earlier. The November PPI is expected to decline by 2.0%, compared with a 2.8% decline a month earlier. The University of Michigan consumer confidence index is seen drifting slightly lower in December to 55.0 from 55.3 a month earlier.
Friday, December 12, 2008
Dollar Declines to Six-Week Low on Reduced Demand for Funding
Dec. 11 (Bloomberg) -- The dollar fell to a six-week low against the euro and yen as the cost of borrowing in the U.S. currency tumbled, indicating less demand for year-end funding.
The greenback also dropped as the U.S. trade deficit unexpectedly widened and European Central Bank Executive Board member Juergen Stark signaled policy makers are reluctant to keep cutting interest rates aggressively. The Swiss franc slid against the euro and the yen after the central bank reduced its main interest rate to a four-year low of 0.5 percent.
“The decline in absolute panic since October has pushed investors to unwind some dollar longs,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “We could see a trend lower for the dollar for three months.” The firm recommended yesterday that investors erase bets that the dollar will appreciate.
The dollar fell 1.6 percent to $1.3238 per euro at 10:48 a.m. in New York, from $1.3023 yesterday. It touched $1.3278, the weakest since Oct. 30. The U.S. currency dropped 1.2 percent to 91.63 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 0.4 percent to 121.29 yen from 120.78.
Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.6 percent to 36.84 per euro and traded at 27.78 versus the dollar.
Falling Libor
The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid 0.1 percentage point to 2 percent, the lowest level since September 2004, British Bankers’ Association data showed.
“There’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign-exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment, the dollar’s on the back foot.”
The Swiss franc decreased 0.9 percent to 1.5754 per euro and 0.4 percent to 77.09 yen. The Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent.
ECB Rates
The ECB reduced the main refinancing rate last week by 0.75 percentage point to 2.5 percent, the most in its history. More cuts may be “small” as the room to lower rates is “very limited,” Stark said today in a speech in Tuebingen, Germany.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London. The dollar may rise to $1.3450 per euro this year, he said.
The U.S. trade deficit expanded 1.1 percent to $57.2 billion in October from a revised $56.6 billion in September, the Commerce Department said today in Washington. The gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists.
“If we correct credit excess without correcting the trade balance, then we need a weaker dollar to facilitate that process of correcting the global imbalance,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The trade deficit has been a dead weight on the dollar for 25 years.”
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession and plunging equities encouraged Japanese investors to repatriate funds. Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real.
South Korea’s won rose as much as 3.2 percent to 1,331 per dollar, the strongest level in a month. The Bank of Korea lowered its benchmark rate less than forecast to 3 percent. The won declined 31 percent against the dollar this year, the worst performance among Asian currencies.
The greenback also dropped as the U.S. trade deficit unexpectedly widened and European Central Bank Executive Board member Juergen Stark signaled policy makers are reluctant to keep cutting interest rates aggressively. The Swiss franc slid against the euro and the yen after the central bank reduced its main interest rate to a four-year low of 0.5 percent.
“The decline in absolute panic since October has pushed investors to unwind some dollar longs,” said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. “We could see a trend lower for the dollar for three months.” The firm recommended yesterday that investors erase bets that the dollar will appreciate.
The dollar fell 1.6 percent to $1.3238 per euro at 10:48 a.m. in New York, from $1.3023 yesterday. It touched $1.3278, the weakest since Oct. 30. The U.S. currency dropped 1.2 percent to 91.63 yen from 92.76 and touched 91.17, the lowest since Oct. 24. The euro rose 0.4 percent to 121.29 yen from 120.78.
Russia devalued the ruble for the fifth time in a month, widening its trading band against the dollar and euro after depleting reserves in defense of the exchange rate. Bank Rossii extended the amount the ruble can decline against a target exchange rate to 7.7 percent, from 6.7 percent yesterday and 3.7 percent a month ago. The ruble dropped 1.6 percent to 36.84 per euro and traded at 27.78 versus the dollar.
Falling Libor
The cost of borrowing in dollars for three months in London fell to the lowest level in more than four years. The London interbank offered rate, or Libor, that banks say they charge each other for such loans slid 0.1 percentage point to 2 percent, the lowest level since September 2004, British Bankers’ Association data showed.
“There’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign-exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment, the dollar’s on the back foot.”
The Swiss franc decreased 0.9 percent to 1.5754 per euro and 0.4 percent to 77.09 yen. The Swiss National Bank reduced the three-month Libor target by a half-percentage point to 0.5 percent.
ECB Rates
The ECB reduced the main refinancing rate last week by 0.75 percentage point to 2.5 percent, the most in its history. More cuts may be “small” as the room to lower rates is “very limited,” Stark said today in a speech in Tuebingen, Germany.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449. The gauge dropped below the 55-day moving average as traders took advantage of low liquidity to test how far the index may fall, said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi Ltd. in London. The dollar may rise to $1.3450 per euro this year, he said.
The U.S. trade deficit expanded 1.1 percent to $57.2 billion in October from a revised $56.6 billion in September, the Commerce Department said today in Washington. The gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists.
“If we correct credit excess without correcting the trade balance, then we need a weaker dollar to facilitate that process of correcting the global imbalance,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The trade deficit has been a dead weight on the dollar for 25 years.”
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to seek funding in the greenback.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession and plunging equities encouraged Japanese investors to repatriate funds. Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real.
South Korea’s won rose as much as 3.2 percent to 1,331 per dollar, the strongest level in a month. The Bank of Korea lowered its benchmark rate less than forecast to 3 percent. The won declined 31 percent against the dollar this year, the worst performance among Asian currencies.
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