Friday June 27, 2008 - 10:11:49 GMT
Share This Story
FXCM - www.dailyfx.com
Forex Research - Yen Soars as Fear Returns, Pound Rallies on Improved CA - More Dollar Weakness to Come?
Yen Soars as Fear Returns, Pound
is back in the currency markets as yesterdayâ€™s -358 point plunge in the
Dow was followed by â€“277 drop in the Nikkei and more 1% decline in the
DAX as well.
â€¢ Japanese Yen: nears 106.00 as risk aversion
â€¢ Euro: Holds 1.5750 despite weak Retail Data
â€¢ British Pound: Soars to 1.9900 as Current Account Improves sharply
â€¢ Canadian Dollar: Raw Materials data on tap
â€¢ US Dollar: Personal Spending and Income on tap
Fear is back in the currency markets as yesterdayâ€™s -358 point
plunge in the Dow was followed by â€“277 drop in the Nikkei and more 1%
decline in the DAX as well. The net result is that USDJPY has fallen
more than 200 points in 48 hours and many of the carry trades that have
performed so well at the start of the week have come undone.
As we noted earlier, the Fed missed a golden opportunity to surprise
the market with a rate hike this week, which no doubt would have hurt
stocks but may have also broken the back of oil speculators by
strengthening the dollar while making credit more expensive. Instead
FOMCâ€™s dilly-dallying produced the worst of all worlds. Oil prices
skyrocketed breaking the $140/bbl handle, stocks fell sharply as a
result and the dollar continued to weaken not only against the euro,
but the yen as well.
On the economic front the news from Japan and Europe was less than
stellar indicating that the slowdown is clearly becoming global in
scope. In Japan Overall Household Spending â€“ a key measure of consumer
strength â€“ fell â€“3.2% versus â€“2.0% projected, the worst reading since
2006. In Europe meanwhile Retail PMI hit a low of 44 its worst reading
since April as higher prices and massive increases in the cost of
energy dampened consumer spending.
The one G-11 country that saw a positive economic surprise was UK. The
UK Current Account narrowed sharply in Q1 of 2008 dropping to its
lowest level since 2005 from â€“12.2 Billion GBP to â€“8.3 Billion GBP.
The change was due to a mild improvement in trade of goods but the bulk
of the adjustment was due to a rise in surplus of the income account.
The pound initially spiked to 1.9900 as traders welcomed the better
balance sheet news, but backed off its highs after the realization that
income flows rather trade flows were the main reason for the upside
surprise. With global equity markets beginning to weaken materially,
currency traders doubt that UK will be able to achieve much of a
benefit from income flow again.
In North America today, the key event risk lies in the Personal Income
and Personal Spending numbers. If income numbers miss to the downside
the greenback may see further selling pressure and 1.5800 could give
way before the weekâ€™s end. If the gap between spending and income
widens significantly, the news would suggest that the US consumer is
going further into debt trying to finance his day to day expenses.
Thus, despite lackluster news elsewhere, the dollar with remain
vulnerable on a relative basis as the story in the currency market is
quickly becoming a race to the bottom.
Will EUR/USD Trade Back to 1.60? Join us in EURUSD Forum
Â©2008 DailyFX. All Rights Reserved.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."