The Dollar fell broadly on Thursday as worries of wider credit-related losses at some US financial firms made investors abandon risky trades, starting a rally in the Yen and Swiss Franc. They tend to attract flows during periods of uncertainty as the low interest rates reflect the capital surplus of their respective countries. Worries over the US financial sector were back on investors’ radar screen, with Citigroup cutting its Q3 earnings estimates for Lehman Brothers. It also lowered estimates for Goldman Sachs Group, Merrill Lynch & Co Inc, and Morgan Stanley, citing expected losses on hard-to-sell assets and lower client trading volumes. ECB policymaker Klaus Liebscher said on Thursday that euro zone growth was expected to come in at the bottom end of expectations this year but an all-out recession in the region was highly unlikely.
News and Events:
The Dollar fell broadly on Thursday as worries of wider credit-related losses at some US financial firms made investors abandon risky trades, starting a rally in the Yen and Swiss Franc.
Yesterday surge in Crude Oil at $122.05 high a barrel also took some steam out of the Dollar’s recent strong recovery, setting it on track for its worst one-day fall in five months against a basket of major currencies.
UsdJpy fell as low as 108.14 and rebounded still down 1.16% at 108.44. UsdChf fell 0.98% to 1.0873. Low yielding currencies such as the Yen and Swiss franc tend to attract flows during periods of uncertainty as the low interest rates reflect the capital surplus of their respective countries. EurUsd rose 0.93% to 1.4889. EurJpy was last down 0.23% at 161.47 after hitting 160.19 low. GbpUsd went 0.72% higher at 1.8765.
Worries over the US financial sector were back on investors’ radar screen, with Citigroup cutting its Q3 earnings estimates for Lehman Brothers. It also lowered estimates for Goldman Sachs Group, Merrill Lynch & Co Inc, and Morgan Stanley, citing expected losses on hard-to-sell assets and lower client trading volumes.
But analysts remained optimistic about the Dollar’s prospects, saying the latest dip was just a pullback in what was generally a Dollar bull market, but cautioned that much would depend on the Oil price and developments in the financial sector. They also said the EurUsd would probably struggle to rise above 1.5000, given concerns about slower growth in the euro-zone area.
ECB policymaker Klaus Liebscher said on Thursday that euro zone growth was expected to come in at the bottom end of expectations this year but an all-out recession in the region was highly unlikely.
Today’s Key Issues (time in GMT):
08:30 GBP Q2 GDP 2nd release 0.1% vs 0.2% (mom)
08:30 GBP Q2 GDP 2nd release 1.5% vs 1.6% (yoy)
09:00 EUR June Industrial new orders -1.1% vs -3.5% (mom)
09:00 EUR June Industrial new orders -6.3% vs -4.4% (yoy)
14:00 USD Fed�s Bernanke speaks on financial stability, Jackson Hole
15:30 CAD June Budget balance C$ 0.347b
15:30 CAD June Budget balance year-to-date C$ 0.517b
12:30 USD weekly Initial claims 443k vs 450k
14:00 USD Lead indicators -0.2% vs -0.1%
14:00 USD Phil Fed business index -14 vs -16.3
00:00 JPY August Bank of Japan rate decision 0.5% vs 0.5%
The Risk Today:
EurUsd: Market dropped as low as 1.4631 on Tuesday, new initial support. Further weakness will put the focus on strong support 1.4366 22nd January low. On the upside, only a return over 1.5000 and 1.5500 will release actual pressure and put key initial resistance 1.6000 into focus. Still a break up there would open the way to Trendline resistance 1.6200.
GbpUsd: Cable hit 2.0158 high 5-weeks ago and 1.8513 low on Friday. Market is now consolidating in 1.8513-1.8795 range. On the downside, recent market break below 1.9105 former support (50% retracement of 1.7049 � 2.1162 advance) looks still strong. Initial support holds 1.8513 Friday low. On the upside, former support 1.9363 holds also strong resistance. Key level holds 2.0100 resistance.
UsdJpy: Last 5-weeks recovery pushed the market up to 110.67 high last week. Further advance would open the way toward 111.92 early January high. On the downside, a return below 108.59 former resistance and 108.37 last week low will undermine the current advance. Profit taking might bring back down to 105 level and may open the way toward 102.73 support and 100 pivot point. Initial support holds 108.14 yesterday low.
UsdChf: Continuous Dollar strength pushed over 1.0800 last week and hit 1.1041 6-months high Wednesday. Initial resistance holds 1.1107 13th February high. Strong resistance holds 1.1593 December 2007 high. On the downside, initial support holds 1.0863. Only renewed weakness below 1.0500 and 1.0375 would retest the 1.0000 pivot point and may open the way toward 0.9637 17th March low.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland