Nov
20
2008
The USD experimented with a choppy trading session against its main currencies rivals yesterday, amid a slide on worldwide stocks. The market fluctuations were conditioned by a fall on Wall Street, which saw stocks plunge to their lowest levels since 2003. There was also a fall in shares in the auto industry threatening bankruptcy in this vital sector of the U.S. economy.
The USD recovered from its earlier losses and managed to rally against the EUR later in the day. It is now trading back under the 1.2500 level after being traded at a session low of 1.2813 yesterday morning. Against the JPY the USD slipped as investors sought refuge from the low yielding currency.
In other news, investors witnessed a drop in consumer price levels from 0.1% to -0.1% in October, which may be indicative of two things. One, stores may be lowering prices across the U.S. to increase spending during the holiday shopping season. Secondly, consumers are simply spending less, lowering the demand for general goods and revealing the doubtful nature they have about their economic situation.
The price contraction has brought new fears, after the cheapening of Oil and other raw materials, because it could trigger deflation. In yesterday’s FOMC Meeting Minutes, Fed officials said that with a deflationary spiral they lack the power to counteract because interest rates are already too low. Deflation is considered for many as a danger to the economy as the resulting fall in prices lead to consumers and businesses holding off on further purchases in expectations of even lower prices, sending the economy down a dangerous path. In addition, the Fed also pointed during its meeting that more interest rate cuts may be needed to prevent further damage to the already week economy.
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Forex Blog
Nov
19
2008
The USD continues to trade between 1.2500-1.2800 against the EUR, and the pair seems to be moving without direction in anticipation of the next big event to hit the news. As long as the 1.3000 level stays untouched, there is a good chance that the pair may move lower again in the coming days. Risk aversion continues to give the Dollar strength and that is likely to continue until we see signs of stabilization.
The Dollar has rallied recently as global economic outlook has worsened, with investors pulling money out of commodities, stocks and high-yield currencies and parking it in safe-haven assets such as U.S. Treasuries. According to Treasury data released yesterday, foreigners bought $143.4 billion of U.S. securities in September, the largest net inflow since early 2006. Testifying before Congress yesterday, Federal Reserve Chairman Ben Bernanke said massive demand for the USD means it remains unrivaled as the world’s reserve currency. In conclusion, two factors have joined together to strongly support the USD. The first was the poor Euro-Zone data, which is continuing to prove that the most sustained global concerns are now coming from the European nations. The second factor is what is known as the “herd effect.” The current USD bullish trend appears to be so enduring that investors are seeing potential for unlimited profits and are so anxious to join the feast that they are becoming almost oblivious to the economic indicators. In this turn of events, only a major combination of unfortunate data from the U.S., along with a series of positive signals from the Euro-Zone, could initiate a long-lasting reversal for the EUR/USD pair.
As for today, a batch of data is expected from the U.S. economy. These figures are expected to set the tone for the USD’s pairs and crosses. Special attention should be given to the U.S. Building Permits which is expected to fall to 0.77M. Traders pay close attention to this figure as it has a strong correlation with the value of the U.S. Dollar. Also today, the Core CPI is scheduled which should also have an impact on the market because if it delivers unfavorable figures, it will validate a problematic U.S. market, and the USD is likely to weaken as a result.
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