Dollar Breaks Psychological Resistance | ForexGen Daily News

Monday, September 29, 2008

The U.S. dollar continued to grow today for the fourth day against the euro on speculation that the problems are more serious for the European economy than for the United States, thus the rate differential may switch to the dollar’s favor.

The dollar broke down the significant support level of the EUR/USD currency pair at 1.4000. Market analysts await very disappointing reports on the manufacturing and GDP growth in the Europe, while they believe that the biggest problems of the U.S. economy connected with the ongoing global recession are already in the past.

Markets are very positive about the future of the U.S. dollar. Despite an extremely fast gain, a very large correction wave is very unlikely to occur soon. But some strategists predict a pullback to about 1.4200 level on EUR/USD if dollar stops now and goes flat for some time.

New Zealand dollar was another currency which lost significantly to the greenback today. Reserve Bank of New Zealand lowered the interest rate by 50 basis points to 7.50 percent, exceeding the traders’ expectations. It looks like more currencies are going to lose their interest rate advantage over the dollar.

EUR/USD declined from 1.3970 to 1.3918 as of 8:39 GMT today — that’s the record bottom level since September 18 last year. NZD/USD dropped from 0.6529 to 0.6449 — the lowest level since September 13, 2006. USD/JPY unlike other dollar-based currency pairs didn’t move in the favor of USD — it went down from 107.77 to 107.00 today.

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Chinese Yuan May Slowdown on Lower CPI | ForexGen

The Chinese yuan traded almost unchanged in price against the U.S. dollar today after posting a significant gain yesterday on speculations that the central bank will reduce the currency’s appreciation rate as the inflation returns to its normal values.

Yuan is the best performing currency in the Asian region this year. It managed to gain 4.2 percent in the first quarter of 2008 and another 2.3 percent in second quarter. Meanwhile stronger yuan damaged the exporters’ competitiveness on the overseas markets.

China’s strong yuan policy was caused by the two major factors — record high domestic inflation and the pressure from the European Union and the United States to revalue the yuan in order to pare the world trade imbalance. As the CPI dropped to 4.9 percent annual rate in August (lowest rate since June 2007) the inflation factor became less critical and the yuan’s appreciation may significantly slowdown.

According the currency analysts, China’s government may now switch from the inflation to the rise in unemployment and export problems. As a consequence yuan may show no further growth this year. Although the currency is believed to be seriously undervalued, it’s very unlikely that the People’s Bank of China will continue strengthening the currency without some strong stimulus.

USD/CNY currency pair rose insignificantly from 6.8381 level yesterday to to about 6.83950 as of 9:50 GMT.

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Yen Continues Rising as Global Markets Fail | ForexGen Signals

The Japanese yen continued to grow against the major currencies today as the early stock market trading shows no sign of the optimism that was expected from the Freddie Mac and Fannie Mae bailout.

Yen is the preferred currency when the stock sell-offs occur and the accompanying carry trades close out. The Japanese currency traded near the two-year highs against the Australian and New Zealand dollars — currencies know for their carry trade value.

Traders are still concerned over the U.S. financial market. While the saving of the U.S. mortgage corporations by the government is almost a certain fact, market participants believe that it won’t occur before the November Presidential elections.

Another factor that is positively affecting the yen is the extremely low interest rate set by the Bank of Japan. Of course, low interest rate isn’t itself something good for the currency, but the Japanese rate is so low at 0.5 percent that it has only one way to go — up. Even if the rate hike won’t happen before 2009, it still sets the positive trend for the currency based on the rate expectations.

USD/JPY dropped from 108.16 to 107.79 as of 7:59 GMT today. EUR/JPY declined from 152.70 to 152.15, while GBP/JPY fell from 190.11 to 189.48. The carry trade favorites — AUD/JPY and NZD/JPY — lost 107 and 24 pips so far.

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Yen Gains This Week on Global Stock Decline | ForexGen Tips

The Japanese yen showed a record fast growth against the major currencies this week as the stock markets declined worldwide and investors favored the low-risk assets in Japan, spurring the currency conversion process.

Japanese currencies grew on the speculation that the weak economic indicators in U.S. and the crisis of the financial institutions may cause a global recession. Both Australian and New Zealand dollars (famous for their carry trade value) touched 2-year minimum levels this week.

Despite the extremely low interest rate associated with it, the Japanese yen performs well on the Forex market during the last few months. Trader’s panic currently overweights the usual profit-seeking behavior.

USD/JPY currency pair declined from 108.31 down to 107.74 after touching 105.52 this week. EUR/JPY reached its one-year lowest value this week at 150.59; it lost 3.5% going down from 159.25 to 153.67 — the largest drop since August 2007. GBP/JPY fell from 196.20 to 190.30 and touched 186.18 level — the lowest rate since December 2003.

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Dollar Grows as Hurricane Gustav Weakens | ForexGen

The U.S. dollar rose today to its new maximum level in almost seven months against the euro as the crude oil prices declined after it became obvious that the hurricane Gustav won’t be causing significant damage to the American oil industry.

The dollar also advanced to the highest position against the Great Britain pound in more than two years today as it rallied on the Forex market. The Australian dollar fell to the lowest level since September 2007 against its U.S. counterpart.

Currency analysts note an elevated dollar optimism among the Forex traders despite the early forecasts that the current USD rally can’t sustain itself and will succumb to the weak economic reports from the United States.

It is possible for the EUR/USD currency pair to decline to its technical resistance level near 1.4400. Breaking this resistance will trigger many stop-loss orders, pushing the dollar up. Some investment banks have already raised their end-of-the-year forecast for the dollar versus the other currencies.

EUR/USD dropped from 1.4587 to 1.4492 as of 12:28 GMT today — it’s the fourth day of decline for this currency pair. GBP/USD falls for the six days; today it went down from 1.7994 to 1.7830. USD/JPY rose a little today — it went up from 108.16 to 108.85.

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