USD - Dollar Goes Volatile on U.S. Banking Worries
The Dollar experienced a very volatile day of trading on Wednesday as a number of different factors helped determine the closing rate of the Dollar versus its main currency crosses. The main factor that helped determine the greenback's strength in yesterday's trading was the banking worries led by Morgan Stanley and Wells Fargo. This came about despite the Dow Jones rallying earlier in the day. This came to people's dismay as Morgan Stanley produced positive figures in the previous quarter and the U.S. housing market posted some impressive figures on Wednesday.
The Dollar rose by a massive 160 points versus the British Pound, as investors dropped the GBP and put their money into equities rather than gamble on the Pound Sterling. The pair ended down at the 144.60 level. Against the JPY the USD slid by 50 points to 97.62, as traders responded positively to the recommendation by major banks of the positive Japanese financial sector, and that the worst of the economic decline in Japan may be over. The Dollar fell by 40 points to 1.2992 versus the EUR, as Europe's financial sector edged higher yesterday. This marks an end to the EUR's losing streak against the USD.
Looking ahead to today, we may see a strong Dollar as Britain and Europe react negatively to the late negative financial news that came out of the U.S. yesterday, as toxic debt and banking liabilities from the banking sector reach the forefront again. Britain and the Euro-Zone have been very susceptible to negative financial news coming out of the U.S. since the start of the financial crisis. There are a number of economic data releases that may help determine the Dollar's value later today. The 2 most important of these are U.S. Unemployment Claims at 12:30 GMT and Existing Home Sales at 14:00 GMT. If the economy continues showing bearish figures, the USD may respond in kind.
EUR - Pound Slumps as Financials Climb
The Pound dropped as Britain and European Banks climbed in yesterday's trading session. The FTSE, DAX and CAC 40's gains were led by the top financial institutions. The most notable increases were held by the major British and European banks, including HSBC, Barclays, Lloyds, and Deutsche Bank. This was partially owed to helpful words from U.S. Treasury Secretary Timothy Geithner. However, on the negative side for the Pound was the gloomy budget released by Britain's Chancellor of the Exchequer Alistair Darling. This comes about as he revealed that income taxes will increase, government spending will swell, and Britain's debt will climb.
As a result of the slump in the British economy, and traders opting to drop the Pound for the equities market, the Pound made terrible losses in Wednesday's trading. The British currency fell by a massive 230 points versus the Japanese currency to close at 141.26. Against the EUR, the Pound plummeted by 150 points as the EUR/GBP started to move higher again resulting from the Euro-Zone economy showing some positive economic advances. The GBP/USD pair finished lower by over 230 points at 141.21, as traders fear the mounting debt of the British economy and prefer the safe-haven U.S. Dollar.
Today, the Pound is likely to continue to deteriorate as Britain reacts to the banking worries from the U.S. The most significant data release from Britain later today will be the CBI Industrial Order Expectations at 10:00 GMT. The British currency is also likely to react to the other spattering of news events coming out of the Euro-Zone and the U.S. These include various manufacturing data from France and Germany, and U.S. Existing Home Sales later in the afternoon. The Pound's currency crosses are also likely to be determined by unexpected speeches by U.S. Treasury Secretary Timothy Geithner and British Prime Minister Gordon Brown later today.
JPY - Yen Climbs against Majors
The Yen rose against most of its major currency pairs in yesterday's trading, as the JPY's safe-haven status returns to the forefront. The Yen's gain against the Dollar in late trading is largely owed to fears that the stress tests for U.S. banks from the Obama administration are likely to reveal great losses in the U.S. banking sector. The USD/JPY currency pair finished lower by 50 points at 97.62. The JPY also made some impressive gains against the Pound to close up by over 230 points at 141.21. This comes about before a report showing that the British economy shrank for the 3rd successive quarter. However, the Yen fell by 10 points against the EUR to close at 126.91.
The Yen seems to be trading on unsteady ground as uncertainty in the financial world reappears on center stage. Just as things seemed to be improving, the Obama administration has set new hurdles for U.S. banks, which is likely to reveal further losses. However, this is likely to show pessimism in the second largest economy. When it comes to the forex market, however, the Yen is likely to benefit from its safe-haven status. This will in-turn go against the Japanese government and Bank of Japan (BoJ) as they desire a weak Yen in order to increase exports and recover from the current financial crisis relatively faster.
Crude Oil - Crude Oil Prices Stable near $48.50
The price of Crude Oil slipped slightly as U.S. Crude Oil Inventories rose higher than expected. The price of the black gold slid by 30 points to $48.43 a barrel. Crude Oil didn't slide as much as people thought it would following the release of this important data, as stock markets across the globe made some gains, thus spurring equities and commodities upwards. Crude Oil seems to have reached its equilibrium as prices have not slipped below the $48 mark in more than 3 weeks.
In order to see a vast improvement in Crude prices in the coming weeks, we will need to see a string of positive economic data releases from the world's leading economies. Truth be said though, a full-fledged global economic recovery is unlikely to occur before the middle of 2010. However, in the short-medium there is some leeway for the price of oil to hit $60 a barrel, provided demand can support this price.
Article Source - Traders Anticipate Heavy News Day in Forex
Key Overnight Developments
• Australian Annual New Vehicle Sales Fall Most in 9 Years
• Euro Range-Bound, British Pound Lower Against US Dollar
The Euro traded sideways overnight, oscillating above intraday support at 1.2986. The British Pound trended lower, slipping -0.2% against the greenback. Technical positioning favors a bearish outlook on both EURUSD and GBPUSD.
Asia Session Highlights
The economic calendar was notably tame in Asian trading hours. Australian New Motor Vehicle Sales fell for the third consecutive month to bring the annual pace of decline to -22.6% in the year to March, the biggest drop in nearly 9 years. The result reflects Australian consumers’ continued hesitation to commit to big-ticket purchases amid a deepening economic downturn that has pushed the unemployment rate to a 5-year high of 5.7%, weighing on disposable incomes and prompting cautionary saving. New Zealand’s consumption climate does not look much better: Credit Card Spending fell -5.0% in the year to March, the most since records began in December 1994.
The US Dollar was effectively unchanged heading into the opening bell in Europe as stock markets searched for direction in Asian trading. Financials put downward pressure on key indices on fears of disappointing earnings reports but automakers and consumer-related stocks offset losses.
Euro Session: What to Expect
February’s Euro Zone Current Account report is expected to show a -10.7 billion euro deficit, a narrower shortfall than the previous month’s -12.7 billion result. Setting aside month-to-month volatility, the expected result would amount to a -18.8 billion euro annual drop in trading terms as compared to a -6.5 billion decline in the year to January. Meanwhile, the analogous metric in the US has been trending sharply higher with the deficit narrowing at an annual pace of 20.5% in 2008. A widening external gap in the Euro area coupled with a contracting one across the Atlantic implies a net outflow of capital from the currency bloc and into the States, extending our medium-term expectations of EURUSD downside into the long-term outlook.
Switzerland’s Trade Balance report is likely to show the surplus is likely narrow in March as exports continue to trend lower. Outbound shipments shrank -1.2% in the year to February, the most since December 2004, as deepening recession grips Switzerland’s major trade partners, weighing on overseas demand. A bit of room for an upside surprise exists, however: the Swiss Franc fell -0.8% through March, which could both make Swiss goods more affordable to foreigners while making imports relatively more expensive for domestic buyers. In any case, the overall bias has favored the downside since exports snapped a 5-year uptrend in November.
Written by Ilya Spivak, Currency Analyst
Article Source - Euro Weakness Against US Dollar to be Amplified as External Balance Sours (Euro Open)
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The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
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