Forex Market Overview

Forex Market Overview 07 July 2008

Usd is stronger against every major currency in the Asian session as speculation grows that the G8 meeting will focus on record high oil prices. EurUsd continued to decline from Thursdays sell-off, sliding to 1.5623 (on rumors that German bonds were to be redeemed rather then re-invested) while UsdJpy traded to 107.52 (7 day high). GbpUsd dropped from 1.9820 to 1.9722 as the market began to once again question the stability of the UK underlying economy. Carry trades gained on renewed Jpy selling and declining risk aversion, pushing EurJpy to 168.07 and AudJpy 103.12. The tight correlation between oil & Usd has lessened slightly in recent day with wti stable around the 143.50bll level while the Usd has taken a bullish tone. After the long weekend in the States, investors have been able to take stock and decide how to react to the Trichet statement that followed the ECB raising rates and the U.S. payroll numbers last Thursday.

Trading was still subdued despite the Usd strength with investors looking for more clues on the U.S. economic situation and to see if the Federal Reserve will be in a position to raise interest rates any time soon. Many will look towards comments from Fed officials over the coming days and in particular to Chairman Bernanke who may give some support to the Dollar during the week ahead.

Asian markets mostly trading higher this morning. Bargain hunters have taken the Nikkei from a 0.5% morning loss to a 1.0% afternoon gain as the market hopes to break its streak of 12 consecutive declines. Banks and exporters were popular choices. But, volumes were thin since the US was closed 4-Jul and could therefore not provide any direction. Chinese banks and airlines led Hong Kong and Shanghai up, but banks led a fall in Sydney over concerns about global credit markets. Also, miners and metals fell in Sydney.

BoJ Governor Shirakawa spoke saying said that global inflationary risks were growing and Japan's economy was slowing due to high energy and commodity prices. A very familiar script and preparing the market for the BoJs growth forecast downgrade expected this week.

A light calendar today will have the markets focused on the UKs Industrial production. The abrupt decline in the output balance of the June CIPS/RBS report on manufacturing suggests that output will soon be collapsing. We have already seen the Gbp come under significant selling pressure and expected the GbpUsd to continued to trade down (in choppy trading) to the 1.9300 mid term.

Daily Forex Pivot Point
AUDUSD
R 3: 0.9829
R 2: 0.9700
R 1: 0.9670
CURRENT: 0.9576
S 1: 0.9580
S 2: 0.9535
S 3: 0.9514

EURJPY
R 3: 170.00
R 2: 169.45
R 1: 169.15
CURRENT: 167.99
S 1: 167.13
S 2: 166.10
S 3: 166.00

USDSGD
R 3: 1.3850
R 2: 1.3827
R 1: 1.3730
CURRENT: 1.3647
S 1: 1.3565
S 2: 1.3505
S 3: 1.3470

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Euro Tumbles As A Break In Employment Overwhelms Strong Retail Figures

US Dollar Rally Extended As Growth, Rate Forecasts Lifted
Conditions seem to be improving for the ailing US dollar. A strong showing from the economic docket, falling crude prices and a boost to interest rate expectations all helped to drive the greenback to its third consecutive rally today. Looking at the fundamental source of this dollar strength, the first quarter GDP revision took the lead. Though the change to the annualized figure from an initially reported 0.6 percent clip to 0.9 percent merely matched economists’ expectations, the rebound helped sideline fears of an impending recession. The breakdown of the growth report revealed the narrowing of the trade balance to a five-year low - thanks to record exports and curbed imports - marked the largest positive change to the headline reading. However, consumer spending was unchanged at 1.0 percent growth from the year before – the slowest pace of expansion since the 2001 recession. This statistic should act as a warning for traders not to be too optimistic on the outlook for the second half. Indeed, the past two quarters expansion was still the worst period of growth in five years and consumer spending is expected to drop much further as the housing recession deepens and employment trends recede. Looking beyond the economic calendar, the pickup in the growth number added to the hawkish outlook for the June FOMC rate decision that has already been padded by the heavy inflation concerns in the minute’s forecasts and recent Fed speak. Fed Fund futures suggest the market is pricing in a 98 percent chance that rates will be held in June and a 34 percent probability of a quarter point hike in September.

Euro Tumbles As A Break In Employment Overwhelms Strong Retail Figures
The euro dropped nearly 120 points against the US dollar and 50 points against its British counterpart Thursday as a mixed batch of data found bears a little more receptive to fundamentals. From well-stocked European economic calendars, the title of top event risk went to the frequently market-moving German employment numbers. Recently, this indicator has lost some of its clout among the FX crowd as the series has steadily improved for over two years. With the May figures, the unemployment rate was unchanged at a 15-year low 7.9 percent. However, the unemployment change was a considerable surprise when the indicator printed the first increase in jobless claims since January of 2006. The news clearly caught the market off guard; but such a reading was long overdue considering the cooling in exports and sharp rise in input costs that has weighed on business sentiment was bound to catch up with hiring trends. And, while the employment numbers are restraining growth forecasts for vigil rate watchers, the session’s other releases may still have an impact on the speculation down the line. The Bloomberg German retail PMI marked its biggest jump in 18 months - a strong sign for domestic spending. If tomorrow’s German retail sales figure confirms today’s PMI, the balance may be restored to euro and EURUSD can recover some of its losses.

British Pound Weighed Down By Sharp Drop In UK Home Prices
While the British pound recovered somewhat from a steep decline during the European trading session, the release of weaker-than-expected house price data undoubtedly took a toll on sentiment on the currency. UK home prices, as measured by Nationwide Building Society, tumbled 2.5 percent during the month of May – the sharpest decline since record keeping began in 1991 – while prices fell 4.4 percent from a year earlier. Indeed, tighter lending standards have cooled demand for properties and mortgages, leaving the UK housing sector a major soft spot for the national economy. However, given the fact that recent consumer price growth has proven to be stronger than expected and is only forecasted to accelerate faster in coming months, the Bank of England has very little scope to cut rates from the current level of 5.00 percent. If the reality of this situation takes a hold of the markets, GBP/USD could regain footing to climb toward 2.00.

Commodity Dollars: Why Canadian Q1 GDP Could Be Stronger Than Expected on Friday
A reversal in commodity prices, including oil and gold, weighed on the Australian and New Zealand dollars on Thursday. However, the Canadian dollar was impervious to the plunge in crude – with which the currency normally has a strong correlation – as Canada's current account balance nearly doubled forecasts as exports of goods surged through the first quarter. The current account balance jumped to a C$5.6 billion surplus that was not only a strong rebound from the previous reading but also the largest positive gap for the series since the third quarter of 2006. Even more encouraging for the health of trade was the fact that the fourth quarter balance was revised from its previously stated deficit to a positive C$0.8 billion surplus. The data bodes very well for Friday’s Canadian Q1 GDP release. According to a Bloomberg News poll, economists expect growth to slow to a tepid 0.4 percent pace from 0.8 percent in Q4 2007. However, given the significant jump in exports, the data could be surprisingly strong and lead the Canadian dollar to rally, but regardless, traders should expect a pick up in volatility on this release.

Japanese Yen Tumbles Versus the US Dollar, British Pound
While the Japanese yen traded wildly across most of the majors but made little headway, the currency tumbled against the US dollar and British pound. Indeed, market-wide we’ve seen that traders are becoming a bit more risk seeking, as indicated by the sell-off in the yen and government bonds, and mild gains in equities. Upcoming event risk for the Japanese yen includes CPI and industrial production, but as usual, Japanese fundamentals are not likely to play a big role in price action for the currency. Nevertheless, it’ll be worth watching to see if inflation pressures pick up in line with expectations, and if industrial output continues to falter amidst weaker foreign export demand.

ForexGen provides its institutional clients with incomparable professional and individualized trading services. As a professional online trading service, ForexGen provides several facilities for all kinds of traders. Our corporate and managed trading service performance are based on respect and appreciation which is only achieved by offering intelligent high end trading tools for secure investment. ForexGen is the easiest and fastest gateway for the corporate traders to perform successful trading, which provides a unique institutional investor professional facilities and highly qualified individualized services for the international customer. ForexGen provides advanced online trading software with full corporate trading services. A rich choice of managed accounts are also available, please check our Managed Account Section

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Yen Rises as Carry Trade Suffers

The Japanese currency rose today on Forex during the Asian trading session as the stocks market drop spurred carry trade sell-offs and the liquidation of the yen-based high-risk assets.

The yen gained against Great Britain pound, U.S. and Australian dollars, while remaining relatively weak against the euro today. German Ifo report on business climate in the country was released today at 8:00 GMT strengthening the euro’s position with a better than expected index value for May.

Although the worries of recession and the worst financial market slumps are slowly fading in the investors’ field of view, the low-yielding currencies, such as yen and Swiss franc, are still seen as a safe haven, when markets are suddenly falling and $130/barrel oil prices threaten to hurt global growth.

The USD/JPY rate declined today for a second day straight — from 103.62 to 103.43 as of 8:33 GMT with a daily minimum at 103.14. GBP/JPY dropped from 203.86 to 203.46 with a daily low at 202.74. AUD/JPY was falling from 99.29 to 98.87 during the Forex Asian session today.

ForexGen provides its institutional clients with incomparable professional and individualized trading services. As a professional online trading service, ForexGen provides several facilities for all kinds of traders. Our corporate and managed trading service performance are based on respect and appreciation which is only achieved by offering intelligent high end trading tools for secure investment. ForexGen is the easiest and fastest gateway for the corporate traders to perform successful trading, which provides a unique institutional investor professional facilities and highly qualified individualized services for the international customer. ForexGen provides advanced online trading software with full corporate trading services. A rich choice of managed accounts are also available, please check our Managed Account Section

ForexGen delivers what traders want: instant order execution, lowest spreads, flexible starting capital, fast deposits and withdrawal, a local support in more than 18 countries, and most of all, solid funds security.

Winning in trading depends on using the right strategy and controlling all the moves. Trading strategies are discussed in details at ForexGen Academy.

ForexGen Latest News (N.Korea Tests Missle)

Usd was steady in Asian session as volumes were thin. Majors were range bound for most of the morning with a jolt of risk aversion as news of the latest missile test by North Korea hit the market. Yesterday US data was broadly better then expected giving the Usd a temporary reprieve from selling. However we see this bullish sentiment to have a very short half life. US consumer consumption unexpectedly revised to 2.3% from 1.9% while inflation indicators eased moderately. Markets are still uncertain about how much of the US downbeat economic condition is already priced in to the Usd. However even if a large portion of weakness is already accounted for we believe that when traders will actually see the disturbing data which corresponds with a recession such as negative GDP or Wednesday's durable good orders, the Usd will come under renewed pressure. With BoJ Governor Suda hinting to a possible rate hike yesterday markets were particular interesting in Japan. Inflation pressure was recorded across the board with core CPI hitting 1.0% vs. 0.9% exp. UsdJpy trended down to 99.31 before North Koreas action reversed the downward slide and the market began to price in a lower probability of a rate cut in the next 12 months (from 17bp to 14bp). Nzd and Aud were both strong performers in Asia. New Zealand real GDP q4 increased 1.0% q/q & 3.7% y/y, the strongest quarterly growth since q3 2004. RBNZ Governor Bollard commented that inflation pressures in New Zealand remain relatively strong and the current setting of 8.25% with a flat outlook remains appropriate. Both currencies are still highly coupled with US and Europe growth and commodity prices. In the US the market will be watching Feb income and spending for signals on the health of the consumer and hints to q1 GDP. Retail sales increased moderately which suggests real consumer was stable providing more support that GDP contracted in q1.

ForexGen provides its institutional clients with incomparable professional and individualized trading services. As a professional online trading service, ForexGen provides several facilities for all kinds of traders. Our corporate and managed trading service performance are based on respect and appreciation which is only achieved by offering intelligent high end trading tools for secure investment. ForexGen is the easiest and fastest gateway for the corporate traders to perform successful trading, which provides a unique institutional investor professional facilities and highly qualified individualized services for the international customer. ForexGen provides advanced online trading software with full corporate trading services. A rich choice of managed accounts are also available, please check our Managed Account Section

ForexGen delivers what traders want: instant order execution, lowest spreads, flexible starting capital, fast deposits and withdrawal, a local support in more than 18 countries, and most of all, solid funds security.

Winning in trading depends on using the right strategy and controlling all the moves. Trading strategies are discussed in details at ForexGen Academy.