Wednesday July 16, 2008 - 10:28:38 GMT
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Forex Research - Dollar Off Lows But Nervousness Persists - Will Oil Help?
relatively quiet night of consolidation in currency markets tonight as
both euro and sterling spent most of the early European session basing
about the 1.5900 and 2.0000 levels respectively.
â€¢ Japanese Yen: Breaks 104.00 as risk fears persist
â€¢ Euro: Consolidates at 1.5900 after yesterdayâ€™s profit taking
â€¢ Swiss Franc: Retail Sales much stronger than forecast
â€¢ British Pound: Jump in claimant count but wages in line
â€¢ US Dollar: CPI, TICS, FOMC minutes all on tap
Dollar Off Lows But Nervousness Persists â€“ Will Oil Help?
A relatively quiet night of consolidation in currency markets tonight
as both euro and sterling spent most of the early European session
basing about the 1.5900 and 2.0000 levels respectively. After making
new record highs the EURUSD dropped sharply in yesterdayâ€™s North
American trade mainly on the collapse in oil and better tone in
equities as investors became more comfortable with the GSE rescue
Nevertheless, nervousness persists in the FX market as traders worry
about further systemic damage to US financial sector should any other
major institutions fail in the near future. Analysts were quick to
point out that the rescue of Indy Mac took more than 10% of FDIC
capital leaving little room for error if other banks follow suit into
insolvency as their mortgage assets depreciate.
The dollar therefore remains in a precarious position as the markets
adopt a state of siege mentality. The greatest fear amongst dollar
bulls is that the massive snake lines that greeted the failure of Indy
Mac will be repeated not only in California, but nationwide if more
regional bank go under. The run on the bank dynamic is one of the most
damaging developments for a countryâ€™s currency as it demonstrates total
lack of confidence in the system.
The market will get a glimpse of one measure of confidence today when
the TICS data is released at 13:00 GMT. The TICS report is two months
back so the data is relatively backward looking and does not reflect
the current turmoil in the GSEs but it may still offer a clue as to the
appetite of foreign investors for US capital assets. One of the key
drivers behind the GSE rescue plan was the fact that Japan and China
were major holders of those assets and any markdown in their value
would curtail future foreign investment flows into the US which have
been critical to the financing of the US trade deficit. Therefore any
sharp drop off in the TICs figure could add fuel fire and push the
greenback lower toady.
The one positive countervailing force for the dollar has been oil.
Yesterdayâ€™s collapse was one of the major reasons for the buckâ€™s
recovery and should crude decline further today it may provide a much
needed counterbalance to all of the negative news over the past 48
hours. Nevertheless the positive impact of lower crude may have a
limited impact. Concern over systemic risk remains the dominant theme
of trade in FX and could push the EURUSD higher if angst over the state
of the US economy reaches panic levels once again.
Will EUR/USD Trade to 1.65? Join us in EURUSD Forum
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