Financial Firms Affect US Dollar

Investors hunt Yen and Swiss Franc on renewed US Financial worries.

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. 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.

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US Financial Turmoil

US financial turmoil is worsening but FX market await data later this week

News and Events:

The Dollar eased on Monday, amid concern losses at US financial companies will continue to weigh on the slowing economy, after Merrill Lynch said Lehman Brothers may post a loss in the Q3 and take an additional $2.5 bio write-down on home loans for the period.

Negative sentiment was completed by comments from Minneapolis Fed President Gary Stern saying that the next two to three quarters could be disappointing.

British house prices fell for a tenth straight month in July causing the EurGbp to rise to a session high of 0.7933 before retreating to last trade at 0.7894. Unexpectedly strong New Zealand trade data lifted NzdUsd 0.54% to 0.7459. But it stayed near the six-month low of 0.7388 traded last Thursday.

Market focus this week will shift to a deluge of data, particularly Q2 US GDP on Thursday and Friday's US jobs figures.

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Forex Market Overview

Forex Market Overview 27 June 2008

Usd was slightly stronger in the Asian session after yesterday surging oil prices and worries over growth punished the greenback. EurUsd pulled back from 1.5763 to 1.5724 while GbpUsd followed as 1.9897 to 1.9857. However, the easing of pressure goes against the bearish feel the Usd attracted over recent days and we expect further dollar weakness. US stock markets took a massive dive while crude push to it highest levels ever. Asian stock markets followed the US lower and European equities futures are pointing to a negative open.

Thursday was a red day for US equity markets, as it was for markets in Europe. The S&P500 was lower by nearly 3%, while the DJIA was off by just over 3%, and the NASDAQ by 3.3%. The S&P500 broke through the 1300 level, while crude was moving in the opposite direction crossing the $140 mark, before closing at a record of just under $140. US Economic news out on the day was decent, but was completely overlooked. The summer looks like it's going to be a long one...Oil prices shot up over $140 barrel after the head of OPEC stated that prices could hit $170 barrel this year. Goldman Sachs forecasted more write-downs for Citigroup and they also recommended selling auto shares, this news sent shivers through financial stocks.

Asian markets are unsurprisingly lower this morning, as the Nikkei declines 2.7%, the Hang Seng is down 1.8% and the MSCI A-P is lower by 2.4%. The region is set to return its worst H1 since 1992, as the credit crunch hits home.

In our view Japan's economic data was decidedly negative. Retail sales exceeded market expectations reaching 0.2% but has slowed since February's peak and when you carve out fuel consumption was -0.1% yoy. Household survey's showed real spending was down -3.2% vs. -2.1% exp and Auto sales slowed to 0.2%. In our mind just more evidence that Japan is facing significant headwind on both the domestic & international front and we expect Jpy to suffer.

In the European session markets will be watching EC Economic Sentiment Indicator. This indicator has recently been optimistic regarding economic activity in the euro zone but should fall further today. With the euro at elevated levels and global demand soft industrial confidence should also weaken. However with markets trading off commodity prices and stock markets we don't expect a soft figure will have significant effect on EurUsd strength. In addition, since we are expecting the ECB to hike and NFP to shed over 100k jobs 1.6000 doesn't seem impossible.

Daily Forex Pivot Point
AUDUSD
R 3: 0.9655
R 2: 0.9648
R 1: 0.9604
CURRENT: 0.9582
S 1: 0.9490
S 2: 0.9448
S 3: 0.9405

EURJPY
R 3: 171.00
R 2: 170.00
R 1: 169.15
CURRENT: 168.17
S 1: 166.77
S 2: 166.00
S 3: 165.51

USDSGD
R 3: 1.3850
R 2: 1.3827
R 1: 1.3730
CURRENT: 1.3645
S 1: 1.3635
S 2: 1.3580
S 3: 1.3554

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