Monday August 11, 2008 - 11:43:46 GMT
Share This Story
FX Solutions - www.fxsol.com
The Dollar's Excellent Week
When economic fundamentals, central bank rate policy, and
technical analysis align the currency market can experience the rare tsunami
that struck the euro this week.
From Monday to Friday the euro lost 4.0% against the US
dollar, 2.5% against the yen, and 1.7% against the British Pound. Almost all the losses against the dollar and
the pound, (3.3% and 1.5%) and the entire decline versus the yen, occurred
after Jean Claude Trichet the President of the European Central Bank (ECB)
reordered the market view of the Eurozone economy.
European statistics have been failing for several weeks. But
Mr. Trichet moved the euro reconsideration into high gear when he admitted that
the Eurozone economies are in for a very rough few quarters immediately
ahead. Acknowledgement of economic
weakness is a new factor and given Mr. Trichetâ€™s history of letting the markets
know the bankâ€™s thinking and with the second quarter GDP release coming this
Thursday, no currency trader was disposed to take him at anything other than
â€śMuch of the immediate prognosis for the euro will depend on Mr.
Trichet's answers to questions about the Eurozone economy. Strict
inflation talk from Mr. Trichet is expected, but the more he acknowledges
pending economic weakness or cooling inflation the more the markets will begin
to price a rate cutâ€ť. That was the analysis I posted on our website on
Wednesday evening before the ECB rate announcement. And so it turned out.
Mr. Trichetâ€™s commented that â€śwe are indentifying downside riskâ€¦for a
number of months and I would say that the information that we have which are
very, very clear for some of them suggest the materialization of those risks."
He also suggested that Eurozone growth may experience a trough the next two
quarters. Both statements were a clear
warning that the economies of the euro 15 have deteriorated faster than the
central bank expected. Although the ECB
maintained its current base rate of 4.25%, the implications of the new economic
assessment for future rate policy are plain.
The Federal Reserve began its own rate consideration in a
gingerly fashion on Tuesday. The FOMC statement said â€śAlthough downside risks
to growth remain the upside risks to inflation are also of significant concern
to the Committee.â€ť Though the statement was at pains to delineate the economic
problems in the US,
those are well known and have long been priced into the dollar outlook. The
mention of the concern of the committee was new, at least in phrasing. And it seemed to add a note of urgency to the
Fed concerns about inflation.
The Fed has recently been highlighting its view of inflation and
intensified the inflation rhetoric in its Tuesday statement. But it cannot
yet raise rates. The economy is still weak with worrisome if not unknown
risks in the banking, financial and consumer credit and mortgage sectors. High
oil prices are crimping American consumer spending, the engine of GDP.
But the economic outlook in Europe and
future ECB rate cuts were not the only factors weighing on the united currency.
The euro broke three critical technical supports in its week-long descent: the unbroken trend support line at 1.5500-15 which
went back to last August and the beginning of the credit crisis; the
38% Fibonacci retracement at
1.5410-20 of the February to July climb;
the 23% Fibonacci of the entire August to July move at 1.5380-90.
The currency debate between the euro and the US dollar has shifted
topic. It is no longer solely about the rate policy of the ECB and the
Federal Reserve. Although central bank policy is the prime determinant in a
currencyâ€™s value both banks are on long term hiatus. It is not primarily
about the US economy which though weak has not collapsed and has been a story
for many months. The debate is now about the economic health of
the Eurozone and it has been brought to the fore courtesy of Jean Claude
Trichet the President of the European Central Bank. It is a debate the Eurozone
and the euro will lose.
Joseph Trevisani[email protected]
FX Solutions, LLC
Chief Market Analyst
IMPORTANT NOTICE: These comments are
for information purposes only. Past results are not necessarily indicative of
future results. FX Solutions, LLC believes that customers should be aware of the
risks associated with over-the-counter, spot Forex. Forex trading is highly
speculative in nature which can mean currency prices may become extremely
volatile. Forex trading is highly leveraged, since low margin deposits normally
are required, an extremely high degree of leverage is obtainable in foreign
exchange trading. A relatively small market movement will have a proportionately
larger impact on the funds you have deposited. You may sustain a total loss of
your funds. Since the possibility of losing your entire cash balance does exist,
speculation in the Forex market should only be conducted with risk capital you
can afford to lose which will not dramatically impact your lifestyle.
To the best of our ability, FX
Solutions believes the information contained herein is accurate and true. We
reserve the right to make corrections and/or update the material when deemed
necessary. Therefore, FX Solutions assumes no responsibility for errors,
inaccuracies or omissions in these materials.
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."