Forex Trading Center

The Dollar took a break from its bearish run versus the EUR yesterday, but the long term trend could continue today. Driving yesterday’s reversal were losses in U.S. equities and stronger manufacturing data from the U.S. Today’s trading will be highlighted by key data releases from Europe and Britain, perhaps returning the EUR/USD to its bullish streak.

USD – USD Profits as Stocks Sell Off

The U.S. Dollar held small gains late Thursday as pessimism about the strength of the economic outlook put selling pressure on stocks and higher-yielding currencies. The currency had been lower earlier with stocks rising after the Federal Reserve Bank of Philadelphia’s index on manufacturing jumped far more than forecast this month.

The U.S Dollar also traded higher against the Yen at 91.21, up from 90.84 yen Wednesday. The Dollar sank to a seven-month low against the Japanese currency on Wednesday. The Dollar’s slide against the yen picked up pace after Japan’s Finance Minister Hirohisa Fujii said a strong yen had advantages for the nation’s economy.

The Dollar has been on the ropes in recent weeks, with the Dollar index losing 2.41% this month. Pressure has been tied in part to rising risk appetite, which has seen investors shun the greenback’s safe-haven status in favor of equities and other assets.

Still analysts expect the U.S Dollar to resume its more traditional relationship with economic data, rising with positive economic news and falling when the outlook for the U.S. turns gloomier.

EUR – Euro Hit 1-year Peak vs. the U.S Dollar

The European currency held onto gains to hover near a 1-year highs against the U.S. Dollar on Friday, as equities and commodities advanced on expectations of economic recovery, putting pressure on the greenback. It advanced a 3rd day to $1.4716 and yesterday reached $1.4737, the strongest level since last September. The EUR has gained more than 2.5% this month, riding improved investor confidence and expectations that U.S. rates are likely to stay at rock bottom for some time.

The EUR also traded near a 4 month high versus the Pound before a German report today that may show the pace of decline in producer prices slowed, providing more evidence the 16-nation region’s economy is emerging from the recession. The pound traded near its lowest since May as a report yesterday showed the jobless rate in the U.K. rose to the highest since 1995.

The 16-nation currency rose above 98 pence for the first time on Dec. 30. It advanced a third day to $1.4716 and yesterday reached $1.4737, the strongest level since Sept. 25, 2008. The Sterling is likely to weaken in the coming months as the government needs to rein in spending and its central bank is likely to retain an expansionary monetary policy, analysts said.

JPY – Yen Gains after BOJ’s Shirakawa Comments

The Japanese yen had gained after Japan’s new finance minister said currencies were not moving rapidly and that he opposed currency intervention as long as market moves were moderate. The Yen rose to the day’s high against the Dollar pushing the U.S. currency down more than 0.2% on the day to around 90.60 yen. The pair traded around 90.90 yen before the comments.

The yen also got a boost after Bank of Japan (BOJ) Governor Masaaki Shirakawa said a stronger yen would push down prices in the near term but might support the economy in the longer run. The Japanese currency jumped versus the EUR, which trimmed earlier gains and slid to the day’s trough of 133.54 yen, down slightly on the day.

OIL – Crude Oil Trades Lower as USD Firms

Crude Oil finished slightly lower after a volatile session Thursday, as the U.S Dollar firmed and traders digested upbeat economic news and a bigger-than-expected drop in U.S. stockpiles in the previous session. Crude earlier rose to a high of $73.16 a barrel and fell to a low of $70.40 a barrel.

On Wednesday, Oil rose more than 2% after the Energy Department reported a bigger-than-expected drop of 4.7 million barrels in U.S. stockpiles of the commodity in the week ended Sept. 11. Oil remains unable to top the upper end of its trading range at $73 a barrel without a new trigger, analysts said.

Oil has tracked equities markets closely in recent months as dealers look to stocks as a leading indicator of an economic recovery that could boost ailing energy demand. What happens to the Dollar, stock market and Gold are now driving the Oil market on a daily basis. A weaker Dollar can fuel purchases of Oil and other Dollar-denominated commodities, as they become relatively less expensive to non-Dollar holding investors.

Article Source – Dollar Edges Up Against EUR, Crude Falls with Stocks

The US Dollar gained as stocks sold off in Asian trading on news that Japan’s third-largest consumer lender will suspend debt payments to its creditors, boosting demand for the safety-linked currency. German PPI, Euro Zone Current Account, and UK Public Borrowing figures are on tap ahead.

Key Overnight Developments

• Japan’s Third-Largest Consumer Lender to Suspend Debt Payments
• Hong Kong Monetary Authority Deputy Chief Says Mortgage Rates Too Low
• Euro, British Pound Decline as Stock Losses Boost the US Dollar

Critical Levels

The Euro lost as much as -0.4% against the US Dollar, testing below the 1.47 level in overnight trading. The British Pound was weaker still, slipping as much as -0.6% against the greenback.

Asia Session Highlights

Currency markets took their cues from stock exchanges in overnight trading, with the safety-linked US Dollar rising by as much as 0.3% on average against its major counterparts as stock exchanges in overnight trading. US equity index futures are trading firmly in negative territory ahead of the opening bell in Europe, suggesting risk-taking is likely to remain subdued and hinting at further gains for the greenback.

Asian exchanges declined on reports that Aiful Corp, Japan’s third-largest consumer lender, was going to suspend debt payments to its creditors citing fund-raising problems. Most worryingly, this may be a part of a larger problem: Japan’s government has capped the interest rates that consumer lenders can charge borrowers and mandated reimbursements of overcharged interest, meaning other major firms may follow Aiful’s lead.

Separately, Hong Kong Monetary Authority Deputy Chief Executive Y.K. Choi said that the city’s banks have lowered mortgage rates “to such an extent that they might not have given due regard to the reputation risk, interest rate risk and liquidity risk potentially associated with their pricing,” stoking fears that policymakers will push for higher borrowing costs and take the steam out of the rebound in asset prices.

Euro Session: What to Expect

German Producer Prices are set to show that the pace of contraction in wholesale prices slowed for the first time in 13 months in August, rising to -7.2% from a record-low -7.8% recorded in the previous month. The uptick likely reflects the recent rebound in energy prices – an index tracking energy costs from Bloomberg and UBS has rebounded over 54% since bottoming in February. While this foreshadows some moderation in deflationary pressure on consumer prices (the benchmark gauge of the price level) in the months ahead, the strength and durability of any rebound remains uncertain. Although economic growth has started to stabilize on the back of broad-based fiscal stimulus, low interest rates, and the inventory restocking cycle, unemployment rates have continued to press higher and will surely lead to anemic private demand once expansionary policy runs its course. Indeed, the International Energy Agency has forecast that global oil demand will remain firmly below its 2004-2008 average through the end of next year, working against sustainable gains in PPI growth.

The Euro Zone Current Account may post a surplus in six months in July following yesterday’s better-than-expected Trade Balance result for the same period as exports surged by 4.1%. The capital side of the equation also looks supportive: Euro area stock markets gained 9.8% while the currency advanced 0.1% on average against its major counterparts. Most interestingly, any improvement over June’s -0.3 billion euro outcome will amount to a break out of the downward trajectory that has guided the metric lower since the peak in June 2007. While it is early to be certain at the moment, this could be hinting at the formation of long-term fundamental support for a stronger Euro if it marks a sustained trend change in the regional bloc’s external position.

In the UK, the Public Sector Net Borrowing report is expected to show that the government deficit expanded by a whopping 17.6 billion pounds in August, the most since May. Public debt has swelled by a whopping 73.1 billion points so far this year and is expected to average 13% of the economy’s total output, the most among the G10 nations. To that effect, the data’s release may prove to weigh on the British Pound, stoking fears that Europe’s third-largest economy could face a cut of its sovereign credit rating.

Written by Ilya Spivak, Currency Analyst
Article Source – US Dollar Rises on Safety Demand as Stocks Retreat in Asian Trading (Euro Open)