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The Dollar fell to a record low against the Euro on Tuesday for the third consecutive session as the market looked ahead to the outcome of a Federal Reserve meeting with most expecting an interest rate cut. While the chances of a 0.50 rate cut by the Fed on Wednesday have largely evaporated in the last few weeks, the futures market still reflects expectations for about 40 basis points of policy easing by the end of January 2008. A sliver of doubt that the Fed would reduce its benchmark interest rate for the second meeting in a row entered the market after an article in The Wall Street Journal earlier on Tuesday made the case that policy easing this week is not a sure thing. The overall negative trend in the Dollar is intact heading into the Fed meeting.

Source : ACM

Written by John Kicklighter, DailyFX

Fundamental Headlines

• USDJPY - The unemployment rate rose for the second consecutive in September. A bigger-than-expected increase brought the jobless guage to 4.0 percent, following the jump from 3.6 to 3.8 percent in August.

• USDJPY - Overall spending among Japanese households doubled its pace of expansion through September. A 3.2 percent increase marks the fastest pick up in consumption habits since March of 2005.

• NZDUSD - The money supply growth guage for the year through September accelerated to 9.4 percent, upending a 20-month low. Notable was the first monthly increase in M1 since April, a possible sign of a hawkish turn for RBNZ.

• EURUSD - The number of unemployed in Germany fell by 40,000 in October, leading the jobless rate to slip to a 14-year low 8.7 percent – as expected. This will stand firmly in the ‘positives’ column for the ECB’s next rate decision.

• USDCHF - Consumer spending rebounded from a seven month low after the UBS Consumption Indicator reported a 1.992 reading in September. Strong wages and hiring trends should keep spending on a firm foundation.

Source: FXCM

Crude oil rose to over US$93 a barrel on news that twenty percent of Mexico’s oil output was halted sending the USDCAD pair to 0.9515. The Japanese September jobless rate rose to 4% from 3.8%. The Bank of Japan is expected to keep interest rates unchanged.

Source : ACM

The Dollar slid to a record low against a basket of major currencies on Monday, extending its broad sell-off on expectations that the Federal Reserve will trim interest rates this week and possibly again later this year. The Fed is widely seen cutting rates by 0.25bp to 4.5% on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market’s downturn; The BOJ is widely expected to keep rates on hold at 0.5% in the coming months as it waits to see more evidence of the US economy’s health and gauge the potential impact on Japan; Dominant themes of the market at the moment: the Australian Dollar, higher Gold prices are a positive along with the expectations for a Reserve Bank of Australia rate hike next month. The Canadian dollar, the Oil price surge is seen as a boon for the energy exporter.

Source : ACM

The Dollar fell near an all-time low against the Euro on Thursday as investors debated the size of an expected Federal Reserve interest rate cut next week after soft economic data pointed to sluggish growth; Declining US stocks, used by investors as a barometer of risk aversion, also pushed the Dollar lower versus the Yen; US interest rate futures fully reflect a 25bp cut in the Fed’s benchmark lending rate, while the chances for a 50bp reduction are around 55%.

Source : ACM

Written by Boris Schlossberg, Senior Currency Strategist DailyFX

Talking Points
• Japanese Yen: 114.00 proves to be strong support
• New Zealand Dollar: Rates held steady
• Euro: IFO mildly better but continues to show decline
• Pound: BoE Financial Stability Report unexpectedly downbeat
• US Dollar: Durables on tap

Another night of range bound lackluster trade in Asian and European markets today as both euro and pound came under pressure from domestic economic releases, seeing limited benefit from the rebound in the carry trades which rallied once again as equity indices rose in both regions.

In the Euro-zone the IFO report printed mildly better than expected at 103.9 versus 103.8 but this was the sixth consecutive monthly decline in the survey’s readings indicating that the strong euro is exerting a negative pull on sentiment in the 13 member region.  The IFO readings continue to suggest that expansion in the Euro-zone continues at a healthy albeit slower pace.  The key question for longer term positional traders is whether the slowdown in the US will drag European growth rates down with it or whether Europe will be able to decouple from the US by generating growth from Asia and Middle East.

Overall, the IFO news confirms our contention that chances of any further rate hikes from the ECB for the rest of the years are minimal at best. Tonight’s German Import Prices did jump to their highest level since April, but at 1.3% year over year rate they hardly represent a serious risk to price pressures in Euro-zone’s largest economy. The euro therefore, slowed its assent against the greenback trading down to 1.4250.  With little positive economic news of its own, the EURUSD is very much likely to trade on its old dynamics as the anti-dollar.  That does not necessarily mean that the pair cannot set new highs especially if US data continues to show serious slowdown in the economy, but it does mean that euro’s rate of advance may slow from the current meteoric levels.

For now the euro continues to benefit from carry trade flows to the upside, but interestingly enough it has not suffered significant declines whenever risk aversion hits the market. The reason for this divergence, we believe, is the recognition of the new interest rate regime by the market. With yesterday horrid housing data almost assuring a Fed rate cut in October, traders are now anticipating 50bp decline in the Fed funds rate from the current levels by the end of the year.  The euro is therefore naturally benefiting from the expected interest rate compression in the pair.  For now all eyes will turn to the Durable Goods number to see if it confirms the latest weakness in the US economy.   

Source: FXCM

The Yen rose against the Dollar and Euro on Wednesday as weaker stocks and an unexpectedly softer September US existing home sales report caused investors to flee risky assets. This bigger-than-expected 8% drop to a 9-year low in September has reinforced expectations that the Fed will have to cut interest rates again next week; Merrill Lynch’s write-downs, related to problems with sub-prime mortgages, and news that sales of previously owned homes dived to a record low annual pace of 5.04 million units in September were seen cementing the case for a Federal Reserve interest rate cut next week; Markets have fully priced in the Fed cutting rates by 25bp from 4.75% at its Oct. 30-31 policy meeting.

Source : ACM

The Dollar slipped on Tuesday, a day after its strongest rally against the Euro in more than a year, as rebounding global stock markets rekindled investors’ appetite for risky assets; Market attention is also focused on Wednesday’s US Existing Home Sales report amid fears the data would point to a further deterioration in the housing market and increase the chances of more Federal Reserve interest rate cuts this year; Firmer equity markets prompted some investors to move back into carry trades, hitting the Yen and boosting high-yielding currencies such as the Australian, New Zealand and Canadian dollars.

Source : ACM

Written by Boris Schlossberg, Senior Currency Strategist DailyFX

Talking Points

• Japanese Yen: Settles at 114.40 as Nikkei bounces
• Euro: Returns to 1.4200
• Pound: Recaptures 2.04 as carry demand resumes
• Canadian Dollar: Retail Sales on tap
• US Dollar: Calendar empty with only CB speak today

In a sharp contrast to yesterday which saw massive volatility currencies spent a quiet night of trade in both Asia and Europe. EURUSD sett a record high of 1.4349 only to plunge 200 points in a matter of hours as risk aversion overwhelmed the market yesterday. Today, with economic calendars still barren of any meaningful data, the FX markets continued to trade off of equity flows. 

Both Asian and European stock markets rebounded in the wake of much better than expected news from Apple computer which reported its earnings after the close of trade in the US. Whether the Apple news will sustain a rally in the US session remains to be seen, but for the time being it created a positive background for equities and stoked the appetite for the carry trade, rallying the euro above the 1.4200 figure, the pound above 2.0400 and the Aussie above .8900. 

If the DJIA follows suit and rallies for the rest of the day, the dollar should continue its downward drift against the euro and the pound while rising against the yen in standard carry trade fashion. However, these latest moves appear to us to be corrective in nature and we believe that risk aversion and equity liquidation are not over. The markets are only starting to recognize the slowdown in the US economy and  that dynamic is likely to drive stocks lower in the near term.  No less an authority than Richard Russell of the Dow Theory newsletter predicts that DJIA will test its 200 moving average near the 13,100 level. Should he be proven right, the high yielders will once again be sold and the yen crosses, like the EUR/JPY, will likely retest their recent spike bottoms.

In economic news, the Euro-zone Industrial New Orders printed slightly below estimates at 5.1% versus 6.0% forecast, but the month’s prior readings were revised upward. Overall the news indicates that the industrial sector continues to perform well, albeit at a slower pace of growth.  The high value of the currency is just starting to crimp investment demand in the region, but the true effects of euro’s strength may not been seen for several months  as the record value of the currency begins to weigh on the region’s producers.

Source: DailyFX

The EURUSD and GBPUSD fell to daily lows of 1.4126 and 2.0258 respectively. News from the U.K. on two more banking groups putting together emergency funds to help customers hit by the credit crunch further pushed the Cable lower. And in commodities, precious metals prices took a dive.

Source : ACM