The US Dollar dropped to fresh lows on Monday while the Yen surged after a meeting of industrialized powers ended with no words of support for the Dollar, offering a green light to speculative sellers. The Dollar was also pressured by Friday’s 2.6% slide in Wall Street S&P Index and increasing speculation the Federal Reserve would cut interest rates next week.
G7 leaders agreed Chinese Yuan was undervalued and they want the Yuan to appreciate faster, which means that the US dollar will depreciate faster, as China leads a generalized Asian appreciation.
Futures Markets pointed US yields had fallen sharply as the Fed funds futures market priced in around a 90% chance of another 25 basis point rate cut at the central bank’s two-day policy meeting on Oct. 30/31.
News and Events:
The US Dollar dropped to fresh lows on Monday while the Yen surged after a meeting of industrialized powers ended with no words of support for the Dollar, offering a green light to speculative sellers. The Dollar was also pressured by Friday’s 2.6% slide in Wall Street S&P Index and increasing speculation the Federal Reserve would cut interest rates next week.
In early Asian trading, UsdJpy went down to 113.48 low from 114.52 Friday close. The EurUsd climbed to a new high at 1.4349, from 1.4306 late on Friday, while the UsdChf dropped to 1.1602 low from 1.1663 close.
Analyst said "Bottom line, there was nothing from the weekend commentary to indicate any consensus forming in the Euro zone for intervention in the Euro any time soon�. Reporters noted US Treasury Secretary Paulson had repeated the “strong Dollar” mantra, but devalued it by emphasizing that currencies should be set by the market.
The only semblance of a consensus was on the Chinese Yuan, which leaders agreed it was undervalued. The G7 wants the Yuan to appreciate faster, which means that the US dollar will depreciate faster, as China leads a generalized Asian appreciation. One Dollar was buying 7.5080 Yuan on Monday and Forex dealers looked for the Chinese authorities to allow it to trade below 7.5000 later in the session.
Meanwhile, the slide in US equities, on mounting fears over the health of the US economy, sparked a flight to safety and an unwinding of carry trades, where investors borrow Yen at low rates to invest in higher yielding currencies like the Australian and New Zealand dollars. The reversal of these positions saw the Yen climb across the board while the AudJpy retreated to 100.17 low and the NzdJpy to 83.865 low.
Futures Markets pointed US yields had fallen sharply as the Fed funds futures market priced in around a 90% chance of another 25 basis point rate cut at the central bank’s two-day policy meeting on Oct. 30/31.
Today’s Key Issues (time in GMT):
New Zealand Market Holiday
22-26 Oct GBP Oct Nation Wide House price 0.3% vs 0.7% (MoM)
22-26 Oct GBP Oct Nation Wide House price 2.1% vs 2.3% (YoY)
09:00 EUR Euro zone 2007 Budget Deficit/GDP ratio -1.65% vs -1.6%
12:15 USD Fed’s Kroszner speaks on financial markets, Washington
12:30 USD Sept National Activity Index previously -0.57
12:30 USD Oct UBS Gallup Optimism previously 68
18:45 EUR ECB’s Trichet speaks at a gala dinner, New York
The Risk Today:
EurUsd hit new high 1.4349 this morning. Last week break up 1.4280 opened the way through 1.4333 strong resistance. Next resistance holds 1.4400. On the downside, a return below 1.4280 former resistance and break down 1.4165 support may open the way down to 1.4000 nearby support and 1.3927 where a lower development would threaten the up-trend. On a long term view, it would need a return below 1.3719 to confirm trend change. Initial support holds 1.4165.
GbpUsd hit this morning a new 3-month 2.0539 high. Initial resistance still hold 2.0500 key level. On the downside, it would need renewed pressure below 2.0200 and further weakness toward 2.0000 psychological level and 1.9880 support to confirm trend change. Beyond that point, 1.9821 marks strong support (76.4% retracement of 1.9652 to 2.0366 advance).
UsdJpy Still downside dominates with last week of 116.81 and 116.45 supports opening the way down to 113.39 (Sept. 11 low). This morning low hit 113.26. Further drop might follow toward 112.61 and retest of ultimate 111.60 (August 17 low). On the upside, it still need a confirmation over 117.63 resistance to open the way for further extend toward 119.06 (61.8% retracement of 123.67 to 111.60 decline).
UsdChf dropped down to 1.1602 low in Asian session. Initial resistance holds 1.1790 (23.6% retracement of 1.2477 to 1.1577 decline) and strong resistance 1.1923 (38.2%). However, recent downtrend development below 1.1680 key level may reopen the way toward 1.1500 psychological support and possibly 1.1484 (2005 March 14 low).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland