Dollar rose, rebounding from record low vs Euro

ACMforex · July 26, 2007, 4:51am

<TABLE class=tborder cellSpacing=1 cellPadding=6 width=“100%” align=center border=0><TBODY><TR><TD class=alt1>Dollar rose, rebounding from record low vs Euro

The dollar rose sharply on Wednesday, posting its biggest daily gain in a year against a basket of major currencies in a technical rebound after hitting fresh record lows against the euro. Investors shrugged off an unexpectedly soft report on U.S. existing home sales, and instead bought back the Dollar after its sharp fall this week driven by growing worries about weakness in the US sub-prime mortgage market.
The yen also rose across the board, as trouble in the credit markets led some investors to sell higher yielding currencies and buy Yen to unwind bets made by borrowing cheap in the Japanese currency.
Looking ahead, the market’s main focus on Thursday will be new home sales for the month of June. The first reading of US Gross Domestic Product for the second quarter will follow on Friday.

News and Events:
The dollar rose sharply on Wednesday, posting its biggest daily gain in a year against a basket of major currencies in a technical rebound after hitting fresh record lows against the euro. Investors shrugged off an unexpectedly soft report on U.S. existing home sales, and instead bought back the Dollar after its sharp fall this week driven by growing worries about weakness in the US sub-prime mortgage market.
“In the longer term, we are still very much dollar bears, but the weakening trend was looking very much extended and we are seeing a move back against that trend,” says analysts.
The yen also rose across the board, as trouble in the credit markets led some investors to sell higher yielding currencies and buy Yen to unwind bets made by borrowing cheap in the Japanese currency.
“What we’re seeing is a little bit of risk aversion and volatility returning to the market,” said analysts and added “Volatility is the natural enemy of the carry trade, so we’re seeing a good pullback in the yen crosses”.
The euro fell as low as 1.3696 before settling around 1.3723 down 0.7% on the day and well below record highs above 1.3852 hit on Tuesday.
GbpUsd dropped -0.34% to 2.0540 more than one cent below a 26-year peak hit on Tuesday. The dollar was up 0.86% against the Swiss franc at 1.2135. Against the Yen, the dollar’s gains were more modest, rising 0.31% to 120.58.
The dollar’s gains on Wednesday came despite a private-sector report that showed US existing homes sales in June were the lowest since November 2002, although the median price rose for the first time in 11 months. Furthermore, in the latest sign of deterioration in demand for non-government fixed-income products, Chrysler postponed a $12 billion syndicated auto loan deal, dealing a brief jolt to U.S. equity prices.
Looking ahead, the market’s main focus on Thursday will be new home sales for the month of June. The first reading of US Gross Domestic Product for the second quarter will follow on Friday.

Today’s Key Issues (time in GMT):

<SITE>[B]08.00 EUR[/B] Euro-zone M3 (3months avg) 10.6% vs 10.7%
[B]08.00 EUR[/B] Euro-zone M3 10.7% vs 10.7% (YoY)

[B]08.00 EUR[/B] July German IFO � Business Climate 106.5 vs 107
[B]08.00 EUR[/B] July German IFO � Current conditions 111 vs 111.4
[B]08.00 EUR[/B] July German IFO � Expectations 102 vs 102.8

[B]12.30 US[/B] June Durable Goods Orders 1.8% vs -2.4%</SITE>
[B]12.30 US[/B] June Durable Goods Orders ex-trans 0.5% vs -0.4%
[B]12.30 US[/B] July 21st, Initial Jobless Claims 310k vs 301k
[B]12.30 US[/B] June New Home Sales 895k vs 915k

[B]22.45 NZD[/B] June Trade Balance -269M vs 9M
[B]22.45 NZD[/B] June Imports 3.3B vs 3.343B
[B]22.45 NZD[/B] June Exports 3.011B vs 3.352B

[B]23.30 JPN[/B] July Tokyo Consumer Price Index -0.1% vs -0.2% (YoY)
[B]23.30 JPN[/B] July Tokyo Consumer Price Index ex-food -0.1% vs -0.1%
[B]23.30 JPN[/B] July Tokyo Consumer Price Index -0.1% vs -0.2% (YoY)
[B]23.30 JPN[/B] June National CPI -0.2% vs 0.0% (YoY)
[B]23.30 JPN[/B] June National CPI ex-Food -0.1% vs -0.1% (YoY)
[B]23.30 JPN[/B] June National CPI -0.2% vs 0.0% (YoY)

[B]23.50 JPN[/B] June Retail Sales 0.6% vs 0.1% (YoY)

The Risk Today:

[B]EurUsd[/B] reversed trend after having hit 1.3852 Tuesday high. The break below 1.3750 put the recent positive trend on hold and put 1.3659 former resistances in sight. Renewed uptrend may refocus the way upward 1.3925 and 1.3986 resistances. Initial minor support holds 1.3696 yesterday low. Minor resistance holds 1.3750 former support.

[B]GbpUsd[/B] two months bullish trend is set on hold. Market reversed from Tuesday new 26-year peak 2.0654 which marks also trend resistance. But market needs a break down of the range formed from 2.0459 Wednesday low to Friday 2.0482 low support area to confirm the down trend. Market 2.0100 former trend resistance holds strong support. A break there will open the door back down to 2.0000 pivot point. Renewed upside may open the door toward 2.0706 trend top.

[B]UsdJpy[/B] rebounded on 119.81 low after 3-session drop after having failed to hold over 122.10 2nd July low. The risk of further setbacks remains; the recent break of 120.78 has accelerated the slide to 120 and still targets 119.55 and 118.37, and possibly even 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. Former initial resistance 1.2080 has been clear yesterday and market now focus 1.2157 resistance (38.2% retracement from 1.2471 to 1.1962). Renewed down trend, may shift on 1.1881 early December low and 1.1739 April 2005 trend supports.

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Resistance and Support:

By[B] Jean-Claude Braha [/B]- ACM Advanced Currency Markets, Geneva, Switzerland

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