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Friday, December 5, 2008

Korean Won Close to Decade Low Again

South Korean wonThe South Korean won continued its decline against the U.S. dollar today despite the other Asian stocks rebound caused by the U.S. government’s intentions to bail-out Citigroup.

The won almost renewed its decade low level, set on November 20th, and extended its monthly drop against the greenback today. The currency lost 38 percent this year and is currently the worst-performing one among the 16 most-traded world currencies.

There are speculations on the equity and Forex market that South Korea will soon enter the worst recession since 1998. The banks expect that almost half of the country’s biggest construction companies will have to search for the liquidity support this year.

USD/KRW rose from 1493.2 to 1513.0 as of 6:00 GMT today, reaching the daily maximum at 1515.5, which is slightly below the record high level of 1515.9 set on November 20th.

Yen Gains after Two Days of Losses

Japanese yenThe Japanese yen rose today against the major currencies after losing for two days as the U.S. macroeconomic reports will show the worsening of the crisis, according to the analysts’ expectations, and the investors will cut the amount of assets funded in the Japanese currency.

The yen experienced one of the worst days yesterday as the stocks surged in U.S. on the revealing of the Barack Obama’s administration’s economic team and the bail-out plan for Citigroup. The demand for the high-yielding assets rose and the yen declined more than any other currency.

The advance report for the third quarter U. S. GDP showed a decline of 0.3 percent almost a month ago. Today, the preliminary report is released and the analysts expect that the decline will be revised to 0.5 percent. The extended contraction of the world’s largest economy will surely hurt the high-yielders and benefit the Japanese yen.

On one hand, the today’s growth of the yen may be just a correction, but on the other hand the overoptimism of the last two trading days was probably just predating a deep worsening of the situation and the further yen’s gains.

USD/JPY dropped from 97.06 to 96.46 as of 8:29 GMT today. EUR/JPY declined from 125.68 to 124.29 and GBP/JPY went down from 147.42 to 145.98.

British Pound Declines before GDP Report

Great Britain poundThe British pound fell today against the U.S. dollar and the yen, following the three days of growth, as the traders expect the GDP report to confirm a decline of the economy today.

The traders expected that the today’s Q3 GDP report will confirm the 0.5 percent decline seen in the advance report a month ago. The report will be released today at 9:30 GMT. Although it won’t mean a recession in U.K. yet, the continuing decline in the fourth quarter will turn the year-to-year GDP change to negative.

The elevated optimism during the first two days of this week and last Friday brought the 4.9 percent growth to the pound versus the greenback. From this point of view, the today’s slight decline is just a temporal correction.

GBP/USD fell from 1.5455 to 1.5354 as of 8:36 GMT today, while GBP/JPY declined from 147.32 to 145.74.

Thai Baht Declines on Political and Civil Crisis

Thai bahtThe Thai baht continued its decline against the U.S. dollar today and touched its lowest level in the last 21 months as the political protests and the civil unrest raged through the country.

The political turmoil in the country is caused by the demands of the opposition and the military leaders for the current Prime Minister Somchai Wongsawat to resign. He still rejects these demands despite the fact that the opposition has already captured the two country’s most important airports.

Analysts don’t see anything positive for the baht for as long as the situation in the country remains at such a dangerous level. And there are no signs that it will end soon, causing the baht to depreciate further.

The Thailand’s baht falls under the double pressure — the currencies of the Asian region fall because of the recession in the developed countries and the foreign capital outflow and also because of the current political crisis, which doesn’t add optimism to the investors and the currency traders.

USD/THB rose from 35.26 to 35.32 as of 10:00 GMT today after reaching as high as 35.51 during the early trading session — a level not seen since February 2007.

Dollar to Post Weekly Decline against Euro

U.S. dollarThe measures proposed by the U.S. government to support the national financial system and the optimism that followed the announcement of Obama’s economic team caused the U.S. dollar to decline against the euro this week as the money risks decreased world-wide.

The U. S. dollar is currently heading for the second negative week against the euro and the British pound and for the third one against the Japanese yen. The developed and emerging countries (including China) showed commitment to continue spending their foreign reserves (denominated mainly in dollars) to boost the economy during the crisis.

The reason behind the growth of the dollar during the recent months lies in the repatriation of the investments during the liquidity crisis. The currency analysts believe that the end of this process is near and the dollar may start to depreciate as the investors will be willing to enter the emerging markets backed by the local government’s stimulus.

EUR/USD rose from 1.2899 to 1.2929 as of 7:38 GMT today to the total of 2.5 percent weekly growth. GBP/USD went up from 1.5387 to 1.5424 or 3.1 percent on the weekly scale. USD/JPY declined slightly today — from 95.33 to 95.24, while the weekly drop is currently at 0.7 percent.

Chinese Yuan Depreciates to July’s Levels

Chinese yuan The Chinese yuan fell to the weakest level since August today as the country’s government continued to manipulate its currency before the scheduled meeting with the U. S. Treasury Secretary.

The reference rate, set by the People’s Bank of China, allows 0.5 percent deviation in the either side during the daily yuan trading session. Today the rate was set to the lowest level since August 2008 and the daily trading led the currency below that level as the traders expected further depreciation.

China’s economic growth is declining; it reached the lowest rate since 2003 as the government tried to decrease the inflation with the strong yuan in the first half of this year. Financial crisis brought another stress factor for the Chinese export-orientated economy — developed countries decreased their demand for the China-produced goods, pressing on the production growth in the country.

According to many analysts the yuan will continue its decline, directed by the People’s Bank of China, as the currency rate manipulation is seen as one of the most effective method to stimulate growth.

U.S. Treasury Secretary Henry Paulson will try to convince the Chinese officials to tolerate more freedom for the yuan’s rate during the meeting on December 4th and 5th. U. S. President-elect Barack Obama also called for a stronger and more loose yuan control. Despite the pressure from the United States, it’s unlikely that China will refrain from using its currency as an economy’s growth locomotive.

USD/CNY reference rate was set to 6.8505 today and currency pair rose from 6.8330 to 6.8802 as of 9:06 GMT today, reaching the daily high at 6.8830.

Pound Loses for Third Day Despite Correction

Great Britain poundThe U.K. pound continued to fall against the U.S. dollar and the Japanese yen today, despite the correction seen in some other dollar- and yen-based currency pairs, as the traders expect a major rate cut by the Bank of England.

Traders bet that the Bank of England will have to cut the interest rate by 100 basis points down to 2.00 percent on December 4th to protect economy from falling down even faster amidst the recession and the global financial crisis. While positive to the economy such a rate cut will definitely eliminate one of the main advantage of the British pound — its high yield.

Currency analysts believe that the pound is still viewed as the high-risk and high-yield currency and behaves according to the respective market patterns. But if the BoE’s interest rate decreases continues at the current pace, the pound may soon join the dollar and the yen in their «club» of the currencies with the rate close zero.

GBP/USD declined from 1.4886 to 1.4829 as of 10:16 GMT today. GBP/JPY dropped only slightly today — from 138.42 to 138.03, while EUR/GBP rose from 0.8473 to 0.8527.

Swedish Krona Near 5-Year Low on Rate Cut

Swedish kronaThe Swedish krona advanced it’s yearly low levels against the U.S. dollar today as the country’s central bank surprised the market participants with the biggest rate cut in the last 16 years to prevent the economy from contracting.

The official repo rate was reduced from 3.75 percent to 2 percent by 175 basis points today. It exceeded the traders’ expectations that were aimed on 1 percent cut. The Riksbank announced its decision today — 3 months after it has raised the interest rate to 4.75 percent.

The krona will definitely become a victim of such unexpectedly huge rate cut. Analytics believe that the Sweden’s government will have a hard time balancing between the target inflation rate and stimulating the economy growth to keep the unemployment as low as possible. The krona will have to continue its decline both against the dollar and the euro.

USD/SEK rate went up from 8.1871 to 8.3470 as of 9:53 GMT today after falling for two consecutive days before. The local maximum was set at 8.5234 on November 21 and if the currency pair goes above that level, it will set a new record high rate since August 2003.

Russian Ruble Near 3-Year Low vs. Dollar

Russian rubleThe Russian central bank widened the trading band for the ruble today as the Russia’s main exports — crude oil and metals continued to depreciate on the global markets.

The Bank of Russia allowed the ruble to depreciate by 30 kopecks today at the beginning of the currency trading session. It was the fourth time since November 11 when the central bank allowed the ruble to decline against benchmark currency basket, which consists of 45% euro and 55% U.S. dollar.

The Urals crude oil, which is Russia’s main export commodity, fell to $39.34 per barrel yesterday — the lowest level since 2005. The Bank of Russia continues to spend the national foreign reserves to keep the currency from depreciating too fast, meanwhile, lowering its benchmark rate stepwise.

Currency analysts don’t believe that the Russian ruble may return to appreciation while the oil prices decline. The current price levels are already critical and they will certainly continue to press on the Russian currency.

USD/RUR rose from 27.820 to 28.061 as of 10:50 GMT today after reaching 28.110 — the new yearly high since February 2006. EUR/RUR went up from 35.637 to 35.799 and reached 35.920 during the trading session — the highest rate since October 8.

Daily Report: Dollar at Critical Point ahead of Non-Farm Payroll

Short term outlook of the dollar is at a critical point ahead of non-farm payroll today. Dollar index's sharp retreat from 87.68 argues that rebound from 84.78 might be completed and turned intraday outlook neutral for the moment. More importantly, the lack of decisive momentum is now raising the possibility that dollar index is completing a head and shoulder top formation (ls: 87.87, h: 88.46, rs: 87.68). However, we must emphasize that it's not advisable to jump ahead before the pattern is formed. Firstly, any rise above 87.68 will dampen the chance of this head and shoulder top scenario and indicate that recent up trend is still intact. Secondly, break of the neckline support at 85.38 will be be an important alert that such head and shoulder pattern has completed. While one could enter short in such case, this should not be taken as the confirmation that a medium term top is formed yet. Sustained break of 83.11 is still needed to be the confirmation. Thirdly, any strong rebound above 83.11 will argue that dollar index could indeed be just unfolding as in triangle consolidations. In any case, head and shoulders look-alikes are always tricky to trade. The non-farm payroll report to be released today could be the trigger.

Dollar Index 4 Hours Chart - Forex Newsletters, Forex Outlook, Forex Review, Forex Signal

Elsewhere, the themes in the forex markets are pretty much unchanged. Yen remains firm against dollar and in crosses. EUR/USD's consolidation continues with the support from Euro's strength in EUR/GBP which hit record high of 0.8723. Commodity currencies are mixed with clear weakness seen in the Canadian dollar as crude oil dived to as low as 43.36. AUD/USD, on the other hand, continues to trade in tight range.

Euro Session: What to Expect

The economic calendar is noticeably uneventful in European hours, with German Factory Orders the only data set to print. Expectations call for orders to lose -0.5% from the preceding month, pointing to a -11.2% decline in the year to October. This will amount to the second-worst reading ever recorded for the metric and the lowest since at least 1993. Industrial output is an important part of the Euro Zone’s largest economy, contributing over 30% to overall growth. Looking ahead, manufacturing can be expected to remain under pressure: industrial goods dominate Germany’s top export commodities and sluggish economic performance around the world is sure to trim demand. That said, some stimulus may be had from continued currency depreciation, making German goods relatively cheaper for overseas buyers. DailyFX Chief Strategist Antonio Sousa expects the Euro to continue to lose value through 2009.

Asia Session Highlights

Australia’s AiG Performance of Construction Index dropped for the ninth consecutive month in November as a sluggish economy and scarce access to lending kept consumers away from big ticket purchases. Spreading expectations that Australia will experience recession in 2009 have seen the RBA slash interest rates by a whopping 3% since early September. That said, Reserve Bank Governor Glenn Stevens noted earlier this week that the “major easing in monetary policy…together with spending measures announced by the Government and a large fall in the Australian dollar” will support demand over the year ahead (albeit, Stevens said this as the RBA cut interest rates by another full percentage point). Still, traders continue to price 15-100 basis points in easing over the next 12 months.

Key Overnight Developments

Critical Levels

euro open 120408 1

The Euro corrected lower overnight to find support at 1.2732, the 38.2% Fibonacci retracement of the 300-pip intraday rally that took the pair as high as 1.2846 in New York hours. The pullback in the British Pound was more pronounced: sterling retraced 50% (1.4642) of the intraday rally to 1.4814 and then turned range-bound between this and the 38.2% Fib level (1.4683). Technical positioning points to the likelihood of a bullish correction in EURUSD and GBPUSD in the near term before broad bearish trends regain momentum.

Forex Traders to Look Past European Data, Focus on Non Farm Payrolls (Euro Open)

Written by Ilya Spivak, Currency Analyst

Forex traders are likely to look past a noticeably uneventful economic calendar to focus on the upcoming US Non Farm Payrolls release late into the session. German Factory Orders data is the only scheduled release, with expectations calling for a -11.2% decline in the year to October. The Euro and British Pound retraced lower in overnight trading to consolidate gains in New York hours.

US Dollar: Non-Farm Payrolls(NFPs) May Fall by the Most Since 1982

The US dollar continues to consolidate within wide ranges, but remains relatively strong across the majors. However, on Friday morning, US non-farm payrolls are anticipated to fall by a whopping 330,000, which would be the worst decline since 1982, while the unemployment rate is forecasted to reach a fresh 15-year high. Will this news trigger a sharp decline in the greenback, or will the forex market consolidation continue?

The Swiss National Bank and the franc

The Swiss National Bank and the franc

Amid the main factors distinguishing the Swiss franc from other hard currencies, is its lasting tendency to serve as a safe haven asset, representing the currency of small, albeit open economy.

To access this research, assessing the role of the franc in today's fx markets while shedding light on the part of the Swiss National Bank, please see "Foreign Exchange Markets: A Practical Guide", an innovative approach to covering FX fundamental and technical analysis.

USD, JPY Drift Lower, RBA Cuts 100-bp

The dollar relinquished ground against the majors, slipping to 1.2765 versus the euro and near the 0.65-handle against the Aussie. Crude oil extended its losses amid decelerating demand as a result of the sharp slowdown in global economic growth, dropping to its lowest level in 3 ½ years to $46.82. Global equity bourses rebounded in the Tuesday session, prompting currency traders to jump back into higher-yielding currencies and sending both the greenback and the yen lower.

The Bank of Japan held an emergency policy meeting, leaving policy unchanged but moved to further alleviate tightening credit conditions, announcing it would broaden the range of collateral to accept for up to 3-months. With the BoJ’s benchmark lending rate hovering near zero, the Bank continues to explore alternative methods to jumpstart the economy.

The key highlights for the remainder of the week will be the policy decisions from the ECB and the BoE, as well as the labor report from the US on Friday. Both the ECB and BoE are anticipated to cut rates aggressively near the end of the week, with markets expecting 50-basis point rate cuts. We look for the greenback to remain buoyed heading into the end of the year and expect the recent strength in the euro and Aussie to be short-lived.

This article contains the following sections:

Tuesday, December 2, 2008

Short-Term Forex Technical Outlook: GBP/CHF

The GBPCHF plunged 750+ pips to end the previous session at 1.7953, and the pair may face increased selling pressures over the week as investors continue to curb their appetite for risk.
Currency Pair: GBP/CHFChart: 60 Min ChartsShort-Term Bias: Bearish
Analysis
The GBPCHF plunged 750+ pips to end the previous session at 1.7953, and the pair may face increased selling pressures over the week as investors continue to curb their appetite for risk. After reaching a high of 1.8976 at the beginning of November, the pair slipped to a low of 1.7436 on 11/13, and has held within the broad range over the last two weeks. Fading demands for carry trades paired with the interest differential between the Swiss franc and the British pound continues to favor a bearish outlook for the pair. Over the remainder of the trading session, we may see the pair work its way down towards yesterday’s low of 1.7855, but the divergence from the 120 SMA suggest that may see a slight retracement over the next two trading sessions. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.
To contact the author of this article, please email: dsong@fxcm.com

JPY Rallies of Safe-Haven Flows

The yen was the biggest gainer at the start of the week as safe-haven flows propped up the Japanese currency, pushing it to 138.12 against the sterling and 117.45 versus the euro. The greenback also edged higher against the majors, surging versus the pound to 1.4805 while edging up toward the 1.26-region against the euro. With revelations from the NBER that the US economy has been in a recession since December 2007, the major US stock bourses collapsed as the Dow Jones sank by 7.7%, and both the Nasdaq and S&P 500 plunging by nearly 9%. The selling accelerated following comments from both Fed Chairman Bernanke and US Treasury Secretary Paulson. Bernanke acknowledged the predicament the Fed finds itself in and expressed further pessimism over the economic outlook. He said, ¡°Although further reductions from the current federal funds target of 1% are certainly feasible, at this point the scope for using conventional interest-rate policies to support the economy is obviously limited¡±. Moreover, he expects the economy to remain weak for some time. Bernanke also suggested the Fed could purchase longer-term Treasuries or agency securities on the open market in substantial quantities in an effort to ¡°spur aggregate demand¡±. This article contains the following sections: You need to be logged in to Forexnews to view the remainder of this article. Please login with your username and password at the top left corner of the site, or Request Free username and password to receive full access.

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Past history indicates a relationship between the background of the US Treasury Secretary and the direction of the US dollar. Treasury chiefs who spent a considerable part of their carreer in the private sector, particularly in banking an finance, have led through a strong dollar period. For complete assessment of this relationship, please see "Foreign Exchange Markets: A Practical Guide", an innovative approach to covering FX fundamental and technical analysis.

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