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Monday July 23, 2007 - 09:16:42 GMT
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ACM - www.ac-markets.com
U.S. sub-prime mortgage problems could slow US growth
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland
News and Events:
The dollar fell to a record low against the Euro on Friday and was on track for its sixth straight weekly decline, weighed down by fears that losses in risky mortgage debt would hurt consumers and slow U.S. growth. The Dollar also tumbled against the yen as investors unwound bets on risky assets such as stocks and emerging market debt, prompting a slide in U.S. share prices and a broad bid for U.S. Treasury debt that sent yields near six-week lows.
Defaults on sub-prime mortgages, made to borrowers with weak credit, and mounting losses on bonds backed by such debt have rattled financial markets and soured general dollar sentiment. St. Louis Federal Reserve Bank President William Poole emboldened dollar bears on Friday when he said losses in the non-prime mortgage market, which includes sub-prime, were large enough to affect home building and consumer spending.
On Friday, EurUsd was trading at 1.3829 down 0.22% near a record peak of 1.3845 hit earlier in the session. GbpUsd hit a 26-year high at 2.0587 before easing to 2.0561 +0.39%. The UsdJpy also fell to a six-week low at 120.87 before edging back to 121.24 down 0.71%. That sparked speculation that carry trades, which involve borrowing yen at low interest rates to buy higher-yielding currencies and assets, may be veering into shaky territory. The yenâ€™s sharp rise on Friday is "not too special yet but be aware, the bigger the yen demand is, the more tension there is for carry trades," said analysts. The yen also attract buyers after the Chinese central bank, in a widely expected move, raised one-year benchmark deposit and lending rates overnight. The yen is often used as a proxy for the tightly controlled Chinese Yuan, and reports on Thursday that Chinese growth surged to an 11-1/2-year high in the second quarter had primed the markets for Fridayâ€™s 27-basis-point rate hike. Analysts said the yenâ€™s rise was also helped by a broader increase in risk aversion amid the U.S. sub-prime crisis and the resulting slide in U.S. stocks on Friday. However, they said yen-financed carry trades that target high-yield emerging market currencies have held up well and added that it would take a sustained slide in equities to shake out these positions.
Today's Key Issues (time in GMT):
08.00 EUR July Euro-zone Manufacturing PMI 56 vs 55.6
08.00 EUR May Euro-zone Current Account previously -â‚¬4.0B
08.00 EUR May Euro-zone Industrial New Orders 1% vs -0.4%
11.00 GB July CBI Industrial Trends survey 6 vs 8
12.30 US June National Activity Index previously -0.22
14.00 US July Richmond Fed Manufacturing Index 3.5 vs 4
The Risk Today:
EurUsd trend remains positive having hit 1.3845 high last Friday and 1.3847 this morning (new records high). A return below 1.3750 and 1.3659 former resistances will put the actual positive trend on hold. Initial minor support holds 1.3780. Minor resistance holds 1.3845.
GbpUsd bullish trend remains intact. Market hit Friday a new 26-year peak 2.0587 and jumped this morning to 2.0604 high. Further upside may open the door toward 2.0706 trend top. Range formed from 2.0459 Wednesday low to Friday 2.0482 low marks initial support. Market 2.0100 former trend resistance holds strong support. A break there will open the door back down to 2.0000 pivot point.
UsdJpy failed to hold over 122.10 2nd July low. This shifts the trend away from the previous 124.17 trend high in favor of a long term view to 115.15 March 5th low. The risk is now of further setbacks; a break of 120.78 would accelerate the slide towards 119.55 and 118.37, and possibly even 116.58. Initial minor resistance holds 120.98 low from 10th of July.
UsdChf remains weak but consolidating after the Wednesday volatile market range 1.1962 to 1.2051. On the recent downtrend, focus may shift on 1.1881 early December low and 1.1739 April 2005 trend supports. Former support 1.2234 marks resistance after initial resistance 1.2051 yesterday high. Rebound from current situation may target 1.2082 resistance (23.6% retracement of 1.2470 to 1.1962 decline).
Resistance and Support:
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot |
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- POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.
- POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.
- POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.
- POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.
- POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.
- POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.
- POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.
- POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.
- POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.
- POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.
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