<TABLE class=tborder cellSpacing=1 cellPadding=6 width=“100%” align=center border=0><TBODY><TR><TD class=alt1>Dollar finds strength against Pound and Euro; Carry trade unwind continues against the Yen.
The yen surged on Thursday, climbing to a three-month high against the dollar, as investors spooked by growing problems in credit markets fled risky assets financed by borrowing in the low-yielding Japanese currency. The British Pound tumbled from it’s 26-year high, marking the first weekly decline against the greenback in six weeks.
News and Events:
The yen surged on Thursday, climbing to a three-month high against the dollar, as investors spooked by growing problems in credit markets fled risky assets financed by borrowing in the low-yielding Japanese currency. Credit spreads widened, stocks fell sharply, and U.S. benchmark Treasury yields tumbled in a flight to quality that prompted currency traders to buy back yen that had been used to buy higher-yielding currencies like sterling in carry trades. Analysts said “We’re seeing a big rise in risk aversion and unwinding of positions in other markets, and that is hurting the carry trade.”
The spillover to the currency market got even uglier after the dollar tumbled below its 200-day moving average against the Yen, a long-term technical chart signal, triggering a wave of automatic orders to sell Dollars and buy Yen, dealers said.
With reasonable panic in the credit markets shifting investors to risk aversion, the British Pound tumbled from it’s 26-year high, marking the first weekly decline against the greenback in six weeks. Adding fuel to the fire, analysts reported earlier in the week an �excessive, technical over-extension� of the Pound, forecasting an imminent correction.
Today’s Key Issues (time in GMT):
<SITE>09.30 CHF July KOF Swiss Leading Indicator 2.01 vs 1.98
12.30 CAD July Business Conditions Orders 1.0 vs 12.0
12.30 US 2Q Gross Domestic Product Annualized 3.2% vs 0.7%
12.30 US 2Q Gross Domestic Product Price index 3.3% vs 4.2%
12.30 US 2Q PCE Price Index 3.6% vs 3.5%</SITE>
12.30 US 2Q PCE Core 2% vs 2.4%
14.00 US July University of Michigan Condition 104 vs 101.9
14.00 US July University of Michigan expectations 81 vs 74.7
14.00 US July University of Michigan Sentiment 91.2 vs 85.3
The Risk Today:
EurUsd forced its way down through a strong support at 1.3683 earlier this morning. Should GDP figures push the dollar higher, look for Euro to trade to its next support level at 1.3623. Should we close today above 1.3683, a move back to 1.3757, the 50% retracement from Tuesday’s high and today’s low, will be our target.
GbpUsd found reasonable support at 2.0366, a minor level given the fact that the next support lies back at 2.0140. However, our short-term target is 2.0263, a 38.2% retracement from the bull trend beginning June 11 and ending July 24. Look for a bounce off that level back to 2.0414 if automated sell orders don’t outnumber buys�
UsdJpy: the pair is consolidating under the 200 simple moving average. Hitting off its trend-line at 118.12, the pair has since progressed back in direction of the MA. Look for heavy consolidation around 119.60. A daily close below 118.10 is very bearish.
UsdChf has consolidated for one week at the 1.2031 support. A continued move up will eye 1.2192 as the next target and strong resistance. On the downside, 1.1882 is the next support, should the carry trade unwind continue.
Resistance and Support:
By James Brandt - ACM Advanced Currency Markets, Geneva, Switzerland