Greenback Touches 2009 Low vs. Currency Basket

The Dollar fell to its lowest levels this year on Monday after the Institute for Supply Management's index on U.S. manufacturing improved more than expected in July. Along with some better earnings reports from foreign banks, the data supported equity markets and spelled trouble for the U.S. currency because investors no longer desire its safe-haven status.



USD - Dollar Tumbles on Optimistic Manufacturing Data

The U.S. Dollar tumbled on Monday after the publication of far better than forecast ISM Manufacturing PMI from the U.S. economy. The reading rose to an 11 month high of 48.9, notably higher than the forecasted figure of 46.4. Construction data in the U.S. also showed some big improvements. This led to a drop in the demand of the USD, as risk appetite grew throughout the day. The greenback tumbled against virtually all of its major currency pairs, as traders feel that the recession is nearly over, and economic growth will soon return to the U.S. economy. As a result, the USD fell to its lowest level in 7 months.

The EUR/USD rose to as high as 1.4444, before closing at 1.4421. This was the USD's weakest rate against the European currency since the middle of December last year. The Dollar fell by about 250 pips vs. the British Pound to 1.6980. This was the Dollar's lowest level vs. the GBP since about the middle of October last year. One of the only currencies that the Dollar gained ground against yesterday was the Yen. The USD/JPY cross increased by about 70 pips to the 95.43 level, as demand for higher yielding assets increased throughout much of Monday's trading.

Looking ahead to today, forex traders can expect much of the same volatility in the market. The Dollar is set to move a lot against its major pairs, such as the GBP, EUR, JPY, and CAD. This is likely to occur, as investors continue to trade on much of yesterday's data. Additionally, the U.S. market is set to be the main market mover again with the with the release of Personal Spending and Personal Income data at 12:30 GMT, and the publication of U.S. Pending Home Sales at 14:00 GMT. In order to take advantage of the very volatile forex market, it's advisable that you open your USD positions now.

EUR - EUR Soars to 7 Month High versus the USD

The European currency soared to a 7 month high versus the USD yesterday, as optimistic global manufacturing data from the Euro-Zone, U.S., Britain and China led to a decline in demand for the safe-haven USD. In addition, the British Pound jumped against the Dollar, as the British economy showed really clear signs that it may rise out of recession by the end of the 3rd quarter. This was following the publication of very positive British manufacturing data, and the much better than expected pre-tax profits of HSBC and Barclays Bank.

The GBP/USD pair rose by over 250 pips in Monday's trading to the 1.6980 level. This may also have been helped as the USD may have come under increasing pressure from the rise in Oil and other commodity prices. The EUR/USD cross climbed by 190 pips to 1.4421, the highest level since December 2008, just weeks after the collapse of Lehman Brothers. Both the EUR and GBP rose against a string of other currencies, such as the JPY, as demand for higher yielding assets rose, along with risk appetite, as yesterday's trading dragged on.

Tuesday's trading is set for another action packed day. The 2 most important releases from Britain will be the Construction PMI at 08:30 GMT and Nationwide Consumer Confidence figures at 23:01 GMT. From the Euro-Zone, we can expect the PPI figures at 09:00 GMT. These releases are expected to help drive market volatility for the EUR and GBP throughout the trading day. Furthermore, it is advisable to follow economic events coming out of other leading economies, such as the U.S. as they are likely to also impact these 2 currencies.

JPY - JPY Falls against All the Major Currencies

The Japanese Yen fell against all of its major currency pairs yesterday, following the release of optimistic manufacturing data from the world's leading economies. This helped push-down demand for lower yielding assets such as the JPY and USD, and push-up demand for high yielding assets such as the GBP and EUR. Also, as the day dragged on, so did risk appetite. This led to the sell-off of the JPY and the buy-up of foreign assets. Analysts said this is trend is likely to continue as the global economy continues to recover.

The JPY fell by 70 pips against the USD to the 95.43 mark. The Japanese currency plummeted to 137.38 from 134.84 on Monday vs. the EUR. Against the British Pound, the Yen dropped nearly 360 pips to the 161.91 level. As a whole, the Yen it still a strong currency. However, if economies such as the U.S., China and Britain start showing growth in the coming months, then we may see the JPY lose lot of the strength that it gained since the start of the current economic crisis.

OIL - Crude Oil Climbs to Over $72 a Barrel

The price of Crude Oil climbed to over $72 a barrel yesterday, before closing at around $71.25. Monday's trading saw Oil at the highest level since July 1st. Yesterday's bullish behavior in Crude can is largely owed to the optimistic manufacturing data that was published by the leading economies, led by the U.S., Britain and China. This is important, as the U.S. and China are 2 of the biggest consumers of Oil, which also played into higher Crude prices yesterday.

The high expectations surrounding the improved global economic sentiment, increased risk appetite, which also led to a fall in demand of the USD. In turn, this helped push-up the price of Crude Oil. The price of Crude was unable to hold above the $72 mark due to a lack of demand. However, if the global economy continues to recover, and positive economic results continue to be published, we may see stronger Oil prices for the foreseeable future.

Article Source - Greenback Touches 2009 Low vs. Currency Basket

Euro Zone, Swiss Prices Set to Fall Again, Stoking Deflation Fears (Euro Open)

Consumer and producer price indexes out of the Switzerland and the Euro Zone, respectively, are both set to push deeper into negative territory, stoking fears that the onset of deflation will delay economic recovery across the Continent.

Key Overnight Developments

• New Zealand’s Wages See Smallest Gain in 9 Years in Q2
• RBA Leaves Rates at 3%, Cuts Language Hinting Future Easing
• Australian Retail Sales Unexpectedly Fell 1.4% in June

Critical Levels



The Euro slipped marginally lower in overnight trading, giving back 0.3% against the US Dollar after surging higher in the New York session. The British Pound oscillated in a wide 80-pip range below 1.70.

Asia Session Highlights



New Zealand’s Private Wages rose 0.3% in the second quarter, issuing the smallest increase in 9 years and underperforming economists’ expectations of a 0.5% result. Rising unemployment accounts for the slump in compensation, reflecting the same kind of aggressive cost-cutting that has been seen across firms in industrial economies and that has produced upside earnings surprises over recent weeks despite small to non-existent revenues. The release foreshadow employment numbers set to cross the wires later in the week, with forecasts suggesting the jobless rate ticked higher to 5.7% in the three months through June, the highest reading since the fourth quarter of 2000. Slowing wage growth also points to lower overall inflation, creating a relatively safe environment for the central bank to lower interest rates. As we noted in this week’s New Zealand Dollar weekly forecast, a rate cut is the next logical step to check the recent gains in the domestic currency that have weighed on exports and “derailed” the economy, according to Prime Minister John Key. Indeed, the ANZ Commodity Price Index showed that the price of New Zealand’s top export goods on global markets grew 1% in July. In terms of the domestic currency, however, the price index grew just 0.1% after the New Zealand Dollar surged 2.5% in the same period, making goods produced in the smaller antipodean country comparatively more expensive to overseas versus domestic buyers and driving away foreign demand. Exports contribute up to 30% to overall economic growth, making a slump in outbound shipments an acute threat to a sustainable recovery from the current downturn.

The Reserve Bank of Australia kept interest rates unchanged at 3% for the fourth consecutive month, as expected. RBA Governor Glenn Stevens sounded decisively optimistic, conspicuously removing comments leaving the door open for future rate cuts that have been included in the bank’s official policy statements over the past two months. Rather, Stevens said that current monetary policy is “appropriate”, noting that “the global economy is stabilizing” while the “downside risks to the global outlook have diminished”. Stevens talked up Australian performance in particular, saying “both consumer spending and exports [are] notable for their resilience” and going so far as to argue that “risk of a severe contraction in the Australian economy has abated.” From here, the RBA expects a period of slow growth as the economy regains a firmer footing, with expansion to pick up pace into 2010. On inflation, the bank expects prices to continue to moderate over the coming year, with the stronger Australian Dollar helping to drive prices lower. Stevens did qualify his exuberance a bit when it came to speaking about credit markets, saying these continue to “present a challenge” and warnings that continued progress in restoring bank balance sheets is essential for the recovery to be “durable”.

Separately, Australian Retail Sales unexpectedly fell -1.4% in June, the first decline in four months, disappointing expectations of a 0.5% expansion. While it is too early to be said definitively, the release may suggest that the effects of the government’s A$12 billion in cash handouts to households that has propped up consumer sentiment in recent months may be starting to abate.

Euro Session: What to Expect



Switzerland’s Consumer Price Index is expected to fall -1.1% in the year to July, yielding the lowest reading in at least 33 years and the fifth consecutive month that the annual pace of inflation prints in negative territory. Strictly speaking, deflation implies an appreciation of the Franc, with falling prices boosting the currency’s purchasing power. Perversely, this means that the Swiss unit could actually see near-term buying interest following lower CPI figures. That said, the longer-term effect is difficult to gauge considering the Swiss National Bank has explicitly committed to “take firm action to prevent an appreciation of the Swiss franc” to keep expectations of future prices from becoming entrenched in negative territory, an outcome that would prolong the current downturn as consumers and businesses delay spending and investment as they wait for the best possible bargain. On balance, it is much easier for a central bank to drive the domestic currency lower than to support its value against speculative assault because it can simply print more of it, suggesting any upside is likely to be short-lived.

Turning to the Euro Zone, the Producer Price Index is set to contract by a record -6.6% in the year to June. The metric foreshadows continued downward pressure on consumer prices, the headline inflation gauge, as lower wholesale costs are reflected in the final price tag. As with Switzerland, the currency bloc now faces a credible deflationary threat that threatens to keep derail recovery from the current downturn. As we have mentioned on numerous occasions, the European Central Bank has struggled to formulate an effective policy response to such a possibility thus far. Jean-Claude Trichet and company have focused on banks as the vehicle through which to make money cheaper and put a floor under falling prices, promising unlimited lending to the region’s financial institutions including an unprecedented 442 billion euro in 12-month bank loans and a 60 billion bond-buying scheme. To the central bank’s credit, borrowing costs have indeed moved lower: although the ECB publicly maintains target interest rates at 1%, it has allowed the average cost of overnight lending (referred to as EONIA) to drift far below that. Indeed, borrowing in Euros has been consistently cheaper than doing so in British Pounds since late June, even though the Bank of England’s stated interest rates are substantially lower at 0.5%. However, the lower cost of credit between banks has not translated into lending, and so has offered little stimulus to the overall economy. Indeed, loans to Euro Zone businesses and households grew just 1.5% in June, the lowest since records began in 1991. Banks may be choosing to hang on to cash as a buffer against $1.1 trillion in as yet unrealized losses linked to the subprime mess, according to the IMF, as well as the fallout from looming defaults and/or devaluations among the EU’s newly-minted central European members. In any case, although the Euro has gained on the back of surging risk appetite, the door is open for traders to punish the single currency as fundamentals return to the forefront. Indeed, the ECB’s inability to ensure that looser monetary conditions translate beyond the interbank market make deflation all but certain, amounting to lower interest rates for comparatively longer than other central banks.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Zone, Swiss Prices Set to Fall Again, Stoking Deflation Fears (Euro Open)

Rising oil prices have them Dancing Down Under

The Dollar has fallen to a year low against almost every major currency, given the problems that the US is facing, it is understandable - but the stock market gains are what is puzzling to me.

Forex Investors and traders are pumping up the markets because historically, when people have a sense of security they tend to abandon the the USD and the Yen and test their luck with stocks.

If the pundit, Nuriel Roubini is right though, the global economic challenge that we are facing is far from over. Only yesterday did the US revise 4th quarter 2008 and 1st quarter 2009 figures to show a decline twice than what was originally disclosed. Worse even, than at the worst time during the Great Depression.

The US Economy is still in freefall. The fact that Tim Geithner, the US Treasury Secretary, has now began telling news outlets that the biggest challenges lay ahead with the enormous deficit is a big warning sign of that.

Broker trading companies investing and trading in the markets have begun to recognize this as the Dollar has matched the economy. The market seems to have reversed from a psychological one to a fundamental one and this is good.

I still believe that the real money to be made lies with Australia and New Zealand. The risk is less because of the low value of their currency in comparison with the big four, Yen, Euro, Pound and US Dollar, and the yields can be higher.

The Aussie and Kiwi have been doing very well as of late, and the Australian honesty we saw last week has seemingly driven much confidence in the competence of the leadership there.

Oil is rising and with it other commodities that rely on the slippery black stuff to help extract it - the $71 per barrel that oil is now is very good for both down under dollars.
Keep an eye out this week for the unemployment numbers from the US and the British GDP figures. They will go a long way to showing us how to move in the coming days.