USD/YEN, EUR/GBP, GBP/USD Analysis

USD/YEN

The dollar and yen were both up yesterday with recession worries on the minds of traders and investors after newly released data showed that the Japanese economy had fallen off more than expected in the last few months of 2008. Support for both currencies also came after the G& failed to mention anything about currency valuations or volatility nor had they mentioned a possible solution to the current economic crisis.

The Japanese data that was released showed a historical decline in exports which caused their economy to contract by more than 3% from October to December. This was the biggest fall since the 1974 oil crisis. Forex traders believed that it was fear that was dominating investor sentiment and thus supported a rally in the yen and dollar, with very little seen being able to turn that around in the short-term.

EUR/GBP

The euro neared a two month low versus the USD that was first reached in the beginning of February, while the Pound Sterling was coming close to a two week low against the USD. Both currencies were hampered by a increase in risk aversion within the markets as many of the larger European Stocks were declining.

The Euro was also pressured by fresh worries about the Western European banks that are exposed to troubles in Eastern Europe as the S&P rating agency warned it could cut the debt rating of Ukraine based on concerns that they will not be able to refinance. To highlight the issue, government debt within the EU did poorly against other riskier equity funds.

As of 5PM GMT, The euro fell ½ of a percent to 1.281 against the USD, as did the pound to 1.4303. Against the yen, the euro dropped to 117.44 a .33% drop, while the dollar traded flat versus the Japanese currency at 91.67.

Volumes were very thin due to holidays in the United States and Canada.

Chart – GBP/USD 5 Day Performance

Several weeks ago, analysts predicted the slide of the Sterling to record lows, perhaps down to 1.20 or worse, 1.00 against the US Dollar. With the banks in England reporting huge losses and very little room for interest rate cuts, are we seeing the beginning of the slide for the Pound? The chart below shows that in the past five days, the Euro has lost more than 4% to the dollar and analysts are saying there is no end to this slide in the near future.

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Obama was on Vacation for Valentine’s day

I am at a loss to understand the new American administration. Last week, President Barack Obama spoke in front of the Nation and told a tale of how dire the financial situation was in the US and the world and how something needed to get done soon in order to fix it. He asked for his Congress, made up of two political parties, to stop bickering, band together and pass the nearly 1 Trillion dollar stimulus bill before it is too late. His exact words were “not everything in this bill is perfect, but what we do know, is that we need to act on it immediately”.

So his congress acted and passed the 1108 page legislation that commits 790 Billion US dollars to stimulate the economy. And what does President Obama do? He goes away on vacation for valentine’s day, leaving Washington and the stimulus bill to wait until Tuesday for his return. IF this was such an emergency wouldn’t he have signed the bill himself before going on a mini-trip with his wife? I wonder what all the unemployed people in the US (there are now over 13,000,000 of them) were saying when they saw their leader eating at a $450 per plate restaurant Saturday night – or when news came out on Sunday that he is replacing his 4 year old helicopter (Marine 1 as it is called) with a brand new one that costs more than a Boeing 747. His country is in dire need of stimulating and he is spending unnecessarily.

Well, the dollar was still holding up although Forex Brokers are a bit nervous about all the US spending. Investors stuck with dollar last week despite everything because there are really no options out there right now. England is having a difficult time, Ireland is on the verge of bankruptcy, so is Spain and Greece. Russia announced, to the chagrin of Forex traders holding Euro positions, that it is re-evaluating their payment of debt to the EU (its another way of saying they have no money right now). Even China has been admitting heavy job losses. It is difficult to see where someone investing or trading in the Forex can do better but the US. But I have a better solution.

Look this week for the down under dollars, New Zealand and Australia, to be strong – they are not as bad off as the rest of the world – yes they are hurting, but their liabilities are less exposed to the global economy. I see the dollar giving in this week and investors start to unload their positions. It is not getting pretty out there, and Forex Trading professionals know a rat when they see it – you cannot predict doomsday and then spend like there is no tomorrow on long term items like the US is doing. Let’s wait and see how the market reacts once last weeks happenings have been digested fully.

Daily FX Updates and Chart Analysis of AUD/USD

GBP

The Bank of England (BOE) released the quarterly inflation report on Wednesday which showed that the level of inflation has been receding more than anticipated. The report came with a comment from BOE governor, Mervyn King, that based on this information, further action is necessary to ease the economy’s continued decline. This news sent the Pound Sterling down against the Euro and US Dollar. At 4PM GMT, the Pound was down 1 ½% to .8996 versus the Euro and down over 1% to 1.4390 against the dollar.

USD

Investors and traders were still digesting the nearly 2 Trillion Dollar bank bailout plan announced by US treasury secretary, Timothy Geithner. Coupled with the US Congressional stimulus package that President Obama has been pushing through the legislature, this brings the total amount that the US is investing in stemming the economic decline to nearly 3 Trillion Dollars. Many applaud the US for their steadfast, all-in approach to helping the economy but question the size and scope of the plans and America’s ability to actually afford it. The Dollar fell ½ of a percent to the Yen to 90.26 and ¾ of a percent against the Euro to 1.2943.

AUD / NZD

The Australian and New Zealand dollars has been the beneficiary of the US, UK and Euorzone’s woes lately and this momentum continued on Wednesday. The Aussie currency rose over ½ of a percent against the USD to .659, ¼ of a percent against the Euro to 1.9682 and 1% to the CAD to .8217. The Kiwi currency (NZD) was up 1% to the dollar at .5273, ¼ of a percent versus the Euro to 2.4637 and a big 1 ½% to the GBP at 2.7368.

Chart AUD(Blue); NZD(orange) against USD – 5 day change.

The “Down Under Dollars” have benefitted significantly in the past five days against a host of currencies. The chart below shows a 5 day moving average for the currencies against the US Dollar. As the US’s plans continue to be revealed and traders continue ther analyses, the fundamentals and technical’s seem to favor the AUD and NZD in the near future.

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