Previous Currency Market Session Summary

The USD rebounded slightly earlier this week after the dollar index touched a new low for 2009 below the 78.40 level and both USD & JPY were buoyed temporarily as equity markets faltered.  Fundamental data helped the US currency pare its losses versus the Euro and gain ground on the Japanese currency.  One dollar bought JPY95.51, up from JPY95.04 on Wednesday. The low-yielding yen has been the biggest loser as investors warm up to holding riskier assets.  Currency markets had a muted reaction to Japanese industrial production figures. The Ministry of Economy, Trade and Industry said Japan’s industrial output rose 8.3% in the April-June quarter from the January-March period – the biggest on-year jump since 1953.

The number of people out of work in Germany, Europe’s largest economy, fell more than expected.  However, the figure excluded 30,000 jobless enrolled in a new government sponsored training program and is being kept artificially low by the extensive use of government subsidies to companies to keep staff on shortened hours rather than lay them off.   Both the Federal Labour Office, which published the jobless data Thursday, as well as independent analysts, repeated that unemployment is likely to rise by another million or more over the next year as the worst recession in 60 years takes its toll.

In contrast, in the US the tally of continuing jobless claims – drawn by workers for more than one week -  fell by 54,000 during the week ended July 18 to 6,197,000 the lowest level since April 11.  This data set spurred the USD & Euro to intraday highs against the safe haven Yen.  The Aussie Dollar also reached a session high against the US dollar to USD0.8262.

Forex Market Expectations

EURGBP extends to challenge stg0.8510 and a break opens a move toward stg0.8500 with stops noted below this level.  If stops triggered then we could be seeing a deeper move toward stg0.8470 (76.4% stg0.8400/0.8698).

EURUSD trades to USD1.4010 area and finding support on the 40 day moving average and no doubt tempting Euro longs.  Technical Cable traders can take note that the rate achieved its target level at USD1.6527 (76.4% USd1.6585/1.6338), with further technical levels coming through to USD1.6535.  Added to this the gravestone doji on the hourly candlestick chart would suggest Cable could be in for a deeper pullback off rally highs.  The USD1.6500 level holds an option expiry for the 1400GMT cut with traders suggesting that we could see cable drift lower following expiry.

Tomorrow’s advance GDP data is likely to offer more clues and could spark a USD rally if data shows that economic conditions will take much longer to turn back to growth.  Look for a firm close in the USD today after two-way action.

Previous Currency Market Summary

The Euro edged up slightly against the USD & JPY  Tokyo Thursday as Asian traders bought on the overnight fall in New York.  However, traders also aware that the risk sensitive currency could resume its decline if global share markets remain weak later in the day.  In the early Thursday trade, traders bargain hunted the Euro following its overnight slide to the lowest levels against the USD & JPY in two and one week respectively.  The relatively cheap Euro was apparently particularly attractive for month end position squaring.

The Euro was a large mover with a relief rally in Asia being sold for the rest of the day for a test of USD1.4000 which managed to hold firm.  The fall from USD1.4300 has been brutal for Euro longs and could induce more selling on rallies as longs try to bailout.  Investor sentiment was key in getting the Euro higher so if stocks fall then that support may slip.

The British pound fell against the USD as a 7% drop in the Shanghai Composite Index  prompted investors to shy away from riskier assets.  In addition, official data showed that British financial institutions lent less money to households last month than at any time in the past 15 years.  Cable slid to as low as USD1.6346 in the European morning session before rebounding.

The Aussie Dollar dragged itself higher in Asian trade Thursday and could enjoy further gains offshore if stock markets tick higher while bond futures continue to suffer from an ever improving economic outlook.

Forex Market Expectation

The Euro is responding to some buying interest around the USD1.4000 level Thursday and could find even further long position interest below that level, although scalping for quick profits appears to be the order of the day.  Cable too is seeing a degree of speculation as both sides battle it out as the rate rebounds back towards USD1.65 and may continue higher if European equities open higher and investors ignore the fall in the Shanghai Composite and decide to focus on any sign that the global recession may be coming to an end.

EURUSD has eased off highs ahead of the European open, as traders note that the USD1.4085 price point holds the strike of a decent size expiry for today’s 14.00GMT cut.  Once above this level the rate could push towards USD1.4120/25.  However, support at 1.4010/00 must hold otherwise we could see a deeper move back towards USD1.3965/60.

The remainder of this week will see traders and investors watching Asian share markets (particularly the Shanghai Composite) which back in 2007 was the first to herald the start of the current financial meltdown and may once again be the harbinger of some very bad news.

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