Brokers trading the dollar helped it climb on Wednesday to a new six week high against the Yen an a new 2 ½ week high against the Euro as US President Obama announced a new 80 Billion Dollar mortgage bailout bill.The new bill is expected to help close to 9 million families either restructure or refinance their mortgages in order to avoid foreclosure.
At 5PM GMT, the Dollar was up 1 ¼% to the Yen at 93.56 and ½ of a percent versus the Euro to 1.2523 after hitting 1.2557 – its lowest level since early December.The US is continuing its aggressive spending policy to shore up its economic situation, a tactic that might prove detrimental to the valuation of the Dollar down the road.For now, those Investing and trading the greenback see the US doing something and is banking on the possibility that it will work to help stave off a worsened situation.
GBP: Bank of England Might Consider a Further Interest Rate Cut in March
Forex traders took the Sterling down marginally against the Euro and Dollar as the Bank of England released minutes of this past month’s interest rate meetings.The record showed that the BOE members voted unanimously for the policy of “quantitive easing” by purchasing other securities and Gilts.The fear was that based on the minutes and the unanimity of the vote, the Bank of England might consider a further interest rate cut in March.
At 5:15 GMT, the Sterling was off .33 of a percent to the USD at 1.4189 and 1/10th of a percent to the Euro at .8824.
Chart Analysis: More USD/JPY – this time a 5 month look
As we said yesterday, the deviation of Dollar/Yen with respect to its historical patterns in terms of its connection with the risk appetite of Forex traders is a problem that could mean additional weakness for the Japanese currency. Its break above 92.40 is significant technically. This is now the new support level and the JPY/USD is setting its sights on the moving average for the past 100 days, somewhere near 94.00 as well as the 2009 high up at 94.62.
Once a safe haven partner to the Dollar in times of economic stress, the Yen has been battling through some tough times lately. Not too long ago, speculation was that the Bank of Japan wanted the Yen to temper its strength in order to protect its export business, but recent events in Japan have caused the Yen to lose its luster amongst traders looking for security during hard times. In this real case of "be careful what you wish for", teh BOJ has seen their currency lose over 2% to the USD in less than 1 week. Looking at the Daily FX news, it seems as if Japan has more to worry about now than the goods they send to other countries - they are now faced with the prospect of returning to the gloomy 1990's.
The SNB was out yesterday with a surprise 100 basis point cut that dropped their target rate by half. This sent CHF into a tailspin after it had finally shown signs of reversing a bit to the strong side yesterday after the recent meltdown in equities. We have been scratching our heads at the extended bout of CHF weakness despite weaker and weaker equity markets and a rather negative view on the events in Euro-land and perhaps grown a bit complacent in our CHF view, as we expected it to remain strong as long as equity markets were weak and risk appetite low. The UK Telegraph's Evans-Pritchard, one of the better market pundits out there over the last year, helps explain in an article this morning why the Swiss Franc has taken a dive. The BIS estimates that Swiss Banks have loaned some 50% of GDP to emerging markets - chiefly the Eastern European countries. With EM under so much pressure, it appears that the market is beginning to fret the risk of default and inability to repay outstanding debts - and this is weighing on the franc, with the shock SNB move a sign of near-desperation on the central bank's part.
Our default view has been that CHF would remain strong as long as risk aversion was on the agenda, but now we're wondering if this view is wrong due to the potential woes in the Swiss banking sector. That may be the new dominant theme compared to CHF's traditional safe haven status. We turn neutral on CHF here - and recognize the significant risk that CHF could go into a further sharp decline as market positioning might not be ready for an extension of CHF weakness. EURCHF is poised at its 55-day moving average around 1.5375 and GBPCHF is looking at its 21-day moving average here around 1.8250. If CHF depreciation is not stopped here, it may continue to crumble sharply. As a background note, it's very difficult to "choose your favorites" in an environment where every country has its own awful set of problems. It's one big "Least Ugly" contest out there...
The short term market focus on the US big three automakers reached a climax yesterday as at first it appeared that a deal had been struck, but then it emerged that no deal was imminent and that the automakers would be forced to submit business plans to congress by Dec. 2, after which a new vote on a potential $25 billion bridge loan would be made. Our view is that in the end, we will see the automakers bailed out one way or another, but the Congress is being far tougher on them than previously, and it remains to be seen whether they might be allowed to fall into Chapter 11 to ease pressure from creditors and allow for a reorganization. We seriously doubt that a total liquidation of these companies would be allowed to take place, though Chrysler may get absorbed by GM eventually. The car company focus had the USD back and forth all day, and the lack of a deal is seen for bearish CAD as automotive parts are one of Canada's key exports and risk of Detroit failure would weigh heavily on the loonie. USDCAD retested the 1.3000 level yesterday.
If feels like the currencies are decoupling somewhat from moves in equity markets after observing yesterday's action, in which JPY crosses were the only reliable movers in synch with equities - and even the JPY crosses didn't hold new lows convincingly. It feels like the market may be putting out feelers for a new theme and we turn a bit more cautious here until/unless the technical breakouts prove what the markets want to do. We find it significant that the tremendous input from government bond markets and equties (Dow slicing through 8000, etc...) has failed to generate a more convincing move in EURUSD. So let's see 1.2400/1.2330 fail in EURUSD and then we'll be more convinced that this stronger USD trend will continue in the short term.
Watch the economic calendar today for the preliminary readings of November European Services and Manufacturing PMIs for an indicator on how fast the EuroZone economy is decelerating. Yesterday, the US weekly jobless claims number reached a new high not seen since the early 1980's. There is no sign that the pressure will ease up and we wonder what the fate of many services jobs will be after what is likely to be a brutal Christmas shopping season in the US.
Chart: EURCHF
It seems that EURCHF is at a crossroads here at the 55-day SMA around 1.5380. Either the franc finds support here or the risk is that CHF sees a capitulation and unwinds even further toward perhaps 1.5800.
The main reason for US Dollar volatilities in the next week according to the news updates by FINEXO are.……
1. The continued drop in oil prices added up to $20 from the all-time peak of $147 hit on July 11. Furthermore, President George W. Bush threatened to veto a bill meant to salvage the housing market. These factors contributed to the reinforcement of the dollar.
2. The dollar received further support from the president of the Philadelphia Federal Reserve Charles Plosser who stated that the Fed might have no choice but to raise interest rates to counteract inflation. According to senior traders, this reflects that market sentiment is now inclined to dollar buying.
3. The fact that the dollar managed to hold its position after breaking the 200 day moving average against the yen was considered a great supportive factor by analysts who stated that if the dollar manages to break the 108.59 barrier of mid June, it could reach up to 110.00 yen.
4. Furthermore, U.S. Treasury Secretary Hank Paulson emphasized the importance of a strong dollar. These statements provoked speculation among traders, and reinforced the dollar. Yet analysts explain that these statements represent the minority's opinion, as the rest Fed members give a higher priority to ending the credit crisis first.
5. According to analysts, the dollar broke through some key levels and has upside momentum; however Japanese exporter selling could emerge at these levels and further weaken the dollar.
According to the news published by FINEXO on Monday for the trade USD/JPY that the Dollar Rose due to a Number of Supporting Factors mentioned in the report but the Analysts were convinced this is Temporary rise.
“Investors still await a Fed statement, regarding the possibility and timing of a raise in interest rate. Meanwhile, the dollar receives unexpected support from traders wishing to adjust their position before the much-anticipated fed meeting, yet Japanese banking officials state that the dollar is lacking strength besides this technical purchase, and predict no significant moves. Other investors that support the dollar are driven by quarter-end considerations, yet the end of this short trend will expose the dollar to a steep fall, as senior analysts believe”.
With the help of this news, On Tuesday I went short at 108.56 thus made a profit of 97 pips. Though I was expecting some more rise but looking at the market situations I decided to close all my open USD/JPY trades. The news provided to me by my broker helped me to save my pips as on Tuesday the highest was 108.61.Today the highest rate that this currency touched is 108.23. I usually trade through news and make my exit at a proper time. This is my news trading strategy which helps me to earn good and safer. I agree, by using other mediums we can make higher profit but for playing safe and steady news trading is the best.
Today that is Wednesday's data(as shown in the above figure) show that U.S consumer confidence reached a 16-year low. This combined with a record annual drop in housing prices, was the cause of the dollar's steeped fall yesterday. The weakness of this data made investors skeptic about a possible raise in interest rates, estimated to remain steady at 2%, thus increasing the pressure to sell the dollar on Tuesday, but the currency rebounded today.
The Japanese Market has also been influenced by market expectations that the Bank of Japan Will keep interest rates at a low of 0.50%, due to the weakness of its own economy. This brought about a strong falling trend of the Japanese currency against other major currency throughout this month, Yet the dollar remained steady against the yen yesterday, at 107.82 yen.
Today it is expected that the price will be in the range 108.19-107.36 to give us the major trend.
