Dollar rebounded sharply on Friday

Dollar rebounded sharply on Friday<!-- #EndLibraryItem -->

<!-- #BeginLibraryItem “/Library/5-ShortDesc.lbi” -->The U.S. dollar rebounded sharply on Friday, after a fall in the previous sessions, as trouble in the US credit markets led investors to repatriate funds from overseas. Worries about ongoing problems in the U.S. sub-prime mortgage and corporate bond markets have led investors to shun bets in riskier assets such as foreign stocks this week, helping the dollar recover more than two cents from record lows against the euro as money flows back into the United States. Meanwhile the flight from risk has led some traders to cut their exposure to carry trades, or purchases of high yielding currencies such as the New Zealand dollar, financed by selling low-interest rate currencies like the yen or Swiss franc. The futures market is indicating an 82% chance the Fed will ease monetary policy by year-end, up from 76 percent overnight. Earlier last week, Markets were pricing in just a 50% chance of a quarter point rate cut by year end.<!-- #EndLibraryItem -->

News and Events:
<!-- #BeginLibraryItem “/Library/2-YNE.lbi” -->The U.S. dollar rebounded sharply on Friday, after a fall in the previous sessions, as trouble in the US credit markets led investors to repatriate funds from overseas. Worries about ongoing problems in the U.S. sub-prime mortgage and corporate bond markets have led investors to shun bets in riskier assets such as foreign stocks this week, helping the dollar recover more than two cents from record lows against the euro as money flows back into the United States. Meanwhile the flight from risk has led some traders to cut their exposure to carry trades, or purchases of high yielding currencies such as the New Zealand dollar, financed by selling low-interest rate currencies like the yen or Swiss franc.
Analysts said "The focus of the market is still taking risky trades off the table. Overall, it’s not really a dollar story, but it’s about rallying low-yielder and falling high-yielder currencies."
The U.S. dollar held on to its overnight gains and was set for its best week in six months after a preliminary estimate from the government showed the U.S. economy in the second quarter grew at its fastest pace since the first three months of last year. Friday, EurUsd was down 0.83% at 1.3636, more than two cents below a record high hit earlier in the week. Against the Yen, the dollar was fairly unchanged at 118.77 after having hit 118.02 low on Thursday, its lowest in around three months. On the week though, the dollar was still down around 2% against the yen, its biggest fall in around four months. The yen has fared even better against high-yielding currencies like the New Zealand dollar. The kiwi dollar tumbled 5.42% against the Yen last week, its biggest weekly fall since last March. The New Zealand dollar dropped 2.28% to 0.7657 on Friday, while the Australian dollar sank 2.6% to 0.8518.
Some analysts said the U.S. dollar’s rebound was likely to soon loose steam, particularly given concerns that weakness in the US housing market will spill over into the broader economy, slowing growth. While the Dollar rebound could have a bit farther to run, particularly against some of the higher-yielding currencies, analysts think its strength will be limited over the medium term by a return of focus to an economy at risk.
The futures market is indicating an 82% chance the Fed will ease monetary policy by year-end, up from 76 percent overnight. Earlier last week, Markets were pricing in just a 50% chance of a quarter point rate cut by year end. <!-- #EndLibraryItem -->

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Today’s Key Issues (time in GMT):

<!-- #BeginLibraryItem “/Library/3-TKI.lbi” --><SITE>[B]08.30 UK[/B] June BoE Consumer Credit �0.8B vs �0.84B
[B]08.30 UK[/B] June Mortgage approvals 109k vs 114k

[B]12.30 CAD[/B] June Industrial Producer Price -0.6% vs -0.5% (MoM)
[B]12.30 CAD[/B] June Raw Materials Prices -0.1% vs -0.2% (MoM)

[B]17.00 EUR[/B] June French ILO Unemployment 8.1% vs 8.1%

[B]23.30 JPN[/B] June Unemployment rate 3.8% vs 3.8%</SITE>
[B]23.30 JPN[/B] June Jobs/applicants ratio 1.06% vs 1.06% <!-- #EndLibraryItem -->

The Risk Today:

<!-- #BeginLibraryItem “/Library/4-TRT.lbi” -->[B]EurUsd[/B] extended losses down to 1.3627 on Friday in the reversed trend started last week after having hit 1.3852 Tuesday high. The break below 1.3750 last week put 1.3659 former resistances in sight. Initial minor support holds 1.3610 early today low. Minor resistance holds 1.3750 former support. Renewed uptrend may refocus the way upward 1.3925 and 1.3986 resistances.

[B]GbpUsd[/B] Market reversed from Tuesday 26-year peak 2.0654 which marks also trend resistance. Sterling dropped Friday -1.19% to 2.0248. Focus will put 2.0100 support (former trend resistance) in sight. A break there will open the door back down to 2.0000 pivot point. Initial resistance holds 2.0494 Friday high.

[B]UsdJpy[/B] sharply dropped on Friday down to 118.01 low before rebounding at 118.81 -1.4%. The risk of further setbacks remains; the recent test of 118.50 pivot point may accelerated the slide to 116.58. Initial minor resistance holds 120.78 pivot hit last Tuesday.

[B]UsdChf[/B] sharply rebounded after latest two weeks consolidation from low 1.1962. Market tested 1.2157 resistance (retracement of 1.2471 � 1.1962 decline) but returned under 1.2082 (23.6% retracement). Sentiment remains for further advance toward 1.2217 (50% retracement). Renewed down trend, may shift on 1.1881 early December low and 1.1739 April 2005 trend supports. <!-- #EndLibraryItem -->

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Resistance and Support:

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By<!-- #BeginLibraryItem “/Library/0-Author.lbi” -->[B] Jean-Claude Braha [/B]<!-- #EndLibraryItem -->- ACM Advanced Currency Markets, Geneva, Switzerland