Forex news

Dollar Falls to 12-Year Low of 100 Yen on Carlyle Fund Failure

March 13 (Bloomberg) -- The dollar fell below 100 yen earlier today for the first time since 1995 and dropped to a record low against the euro after a Carlyle Group fund moved closer to collapse, adding to turmoil in financial markets.

The dollar approached parity with the Swiss franc and slumped against the British pound after Carlyle said lenders will seize the assets of its mortgage-bond fund and President George W. Bush said the U.S. currency's decline was not ``good tidings.'' The dollar's drop may prompt Middle East central banks to reduce dollar holdings, Greg Gibbs, a strategist at ABN Amro Holding NV in Sydney, said in a report.

``Sentiment for the dollar continues to deteriorate very, very rapidly and if we're not careful this will turn into a dollar crash,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, the securities unit of Credit Agricole SA, France's second-biggest bank. ``The risk is that we see a fairly aggressive move sharply lower towards 95 yen, and that could really perk up the interest of the Bank of Japan.''

The dollar fell to 99.77 yen, the lowest since October 1995, before trading at 100.18 at 10:29 a.m. in New York, from 101.79 yesterday. The dollar touched $1.5624 per euro, the weakest since the European currency's debut in 1999, and was at $1.5589, from $1.5551. It slid to a record 1.0045 Swiss francs. Japan's currency advanced to 156.21 per euro, from 158.30.

The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined as low as 71.82. The dollar dropped to $2.0365 per pound from $2.0270, touching the weakest since December.

Yen Sales

Japan sold the yen on the four occasions since 1995 when the currency approached 100 to support exporters including Toyota Motor Corp., the world's second-biggest automaker. The Bank of Japan sold 14.8 trillion yen ($148 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

The yen's 24 percent gain against the dollar from a 4 1/2- year low on June 22 was ``unexpected'' and will damage earnings, Toyota President Katsuaki Watanabe said today.

``We must continue cost cuts by all means, but the currency has reached the level where we have to think about other measures,'' Watanabe told reporters in Tokyo. A gain of 1 yen against the dollar cuts Toyota's annual operating profit by 35 billion yen, according to the automaker.

Intervention Risk

The yen may rise as high as 95 per dollar, according to forecasts this month by Citigroup Inc., the third-biggest currency trader, Lehman Brothers Holdings Inc., the fourth- biggest U.S. securities firm, and Mizuho Financial Group Inc., Japan's second-largest publicly traded bank. Deutsche Bank AG and UBS AG, the two biggest currency traders, had predicted the dollar would hold above 100.

``There's more than a 50 percent probability that the U.S. is in recession,'' Eisuke Sakakibara, dubbed ``Mr. Yen'' when he was Japan's top currency official from 1997 to 1999, said in an interview on March 6. ``The dollar-yen rate is dependent on the state of the U.S. economy.''

The Group of Seven, which next meets April 12-13 in Washington, may signal its intent to consider coordinated intervention, UBS strategists wrote in a March 3 report. Unilateral intervention ``seems unlikely'' as Japan's economy has grown every year since 2002, it said.

Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.

Exiting Carry Trades

The yen also gained as investors exited so-called carry trades, in which they borrow in a country with low interest rates and buy higher-yielding assets elsewhere, earning the spread between the two. The risk is that currency moves erase those profits.

Japan's benchmark rate of 0.5 percent compares with 3 percent in the U.S., 4 percent in Europe, 7.25 percent in Australia and 8.25 percent in New Zealand.

Carlyle Capital Corp., co-founded by David Rubenstein, said in a statement it defaulted on about $16.6 billion of debt as of yesterday. Lenders will ``promptly'' take over all of its remaining assets and any remaining debt is expected ``soon'' to go into default, it said.

The yen has rallied 13 percent against the dollar as the Fed cut rates amid the worst housing slump in a quarter of a century and $190 billion of U.S. subprime-mortgage-related losses and markdowns at the world's biggest financial institutions.

Losing Confidence

``Investors are starting to lose confidence in the dollar, given the increased uncertainty over credit-related losses,'' Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients today. ``Carlyle is unlikely to be the last hedge fund in difficulty. That will only further depress investor sentiment.''

Drake Management LLC, the New York based-firm started by former BlackRock Inc. money managers, said yesterday it may shut its largest hedge fund, while GO Capital Asset Management BV blocked clients from withdrawing cash from one of its funds.

The biggest job losses in five years and record fuel costs are eroding U.S. consumer confidence and spending, which accounts for more than two-thirds of the economy. Lehman and JPMorgan Chase & Co. last week said the U.S. is headed into a recession.

Forex Trading with Robots

Forex Trading Robots

Automated or automatic forex can be defined as the ability to trade forex with the use of a trading program or forex trading robot, without needing a human to physically trade a forex system. With forex, automated trading is an emerging field that began not that long ago.

There are 2 general categories of automated trading:

• Automated trading through managed forex. Some, though not all, forex managed accounts are traded via automated forex. In either case, the trading is passive in that you don’t have to do it. But in the case of automated forex, the trading program or robot executes the trades of their trading system, rather than a human team.
• When you program your own or someone else’s forex system into a program with programming and automatic trading abilities such as MetaTrader, or other trading program. Wealth Lab required programming skills (the programming language used is similar to Pascal), while other programs just emerging that will allow you to select parameters and test your system performance.

Advantages of automatic forex trading systems

What are the advantages of automated or automatic forex trading, whether it’s with a managed forex account using a trading robot, which is a much easier way as you do not have to design or program a system?

They are:

• You do not have to physically trade the system.
• Automated trading can take trades at anytime of the day or night. This is particularly important for systems where the performance is increased when taking a majority of trades in the system, which occurs in systems where trading opportunities occur at times when the person may be sleeping or otherwise cannot get to the computer. So being available for trading 24 hours a day, unlike a trader can, will the profitablility of these systems.
• You can trade multiple systems, such as systems that rely on different types of indicators, or which trade shorter or longer time frames, in order to diversify risk, as well as to smoothen out your equity curve and reduce drawdown.
• An automated system is unaffected by a trader’s psychology, which can sometime cause a system to be not traded properly. If your trader discretion causes you to improve performance, then that is fine, but if it causes a worse performance than if you traded the system mechanically, then this is an issue that is overcome by automated forex.
• Enables the development of new systems that may be difficult for a human to trade, such as systems with a high frequency of trades using tick data. Designing a system is no longer be limited by how practical or easy it is for a person to trade it.

These benefits of automated forex of course is based on the fact that:

• You have chosen a profitable forex system and has acceptable drawdown, as evidenced by historical performance.
• The forex system is not just mechanical, but is fully programmable.
• You are aware, with either active trading or automated trading, that you must monitor the performance to see that the system is still working as well as its past performance.

Hence, that's why it's mentioned that you'll have to use a automated forex provider including managed forex with MetaTrader for those inclined that

EUR USD weekly

The euro appreciated vis-à-vis the U.S. dollar last week as the single currency tested offers around the $1.5460 level and was supported around the $1.5145 level. The pair gained about 170 pips last week. Philly Fed’s Plosser said the Fed may normalize policy quickly when conditions warrant. Fed chief Bernanke called on lenders to enact “vigorous solutions” to counter mortgage foreclosures. The Fed’s Beige Book saw eight of twelve Fed districts report softening economic activity. The Fed announce it will increase its TAF liquidity provision to US$ 100 billion, announced another US$ 100 billion in 28-day repos, and announced it is in close consultations with central banks on liquidity provision. San Francisco Fed President Yellen sees inflation waning while Dallas Fed President Fisher warned against expecting automatic repeat Fed rate cuts.

The ECB kept its refinancing rate unchanged at 4.0%. Trichet cited “short-term upward inflation pressures.” The ECB raised its 2009 inflation forecast to a range of 1.5% to 2.7% and reduced its GDP growth forecast to 1.7% for 2008. Trichet said he is paying “extreme attention” to the U.S’s strong dollar policy.

ECB’s Liebscher said the price of oil is “crucial” to monetary policy. Ecofin finance ministers stepped-up verbal intervention against the euro’s rise. ECB’s Weber said the prospect of lower EMU-15 GDP growth “is not enough reason” to anticipate weaker inflation pressures.

Data released in the U.S. last week saw February ISM manufacturing fall to 48.3 from 50.7 with the prices paid sub-index narrowly lower at 75.5; January construction spending fell 1.7% m/m; January factory orders fell 2.5% with ex-transportation off 0.4%; ISM non-manufacturing improved to 49.3; ADP February payrolls evidenced a jobs loss of 23,000; Q4 productivity increased 1.9%, down from 6.3% in Q3; unit labour costs rose 2.6% in Q4; weekly initial jobless claims rose 29,000 to 2.831 million; January pending home sales were off 19.6% y/y; weekly initial jobless claims were up 29,000 to 2.831 million; January pending home sales were off 19.6% y/y; February non-farm payrolls growth were -63,000 with a cumulative downward revision to December’s and January’s tallies of 46,000; and the February unemployment rate was 4.8% with average hourly earnings up +0.3%.

Data released in the eurozone last week saw EMU-15 HICP unchanged at 3.2%; EMU-15 February manufacturing PMI printed at 52.8; EMU-15 January industrial product prices rose 0.8% m/m and 4.9% y/y; EMU-13 Q4 GDP were up 0.4% q/q and 2.2% y/y; the EMU-15 service sector PMI index improved to 52.3; EMU-15 January retail sales were up 0.4% m/m and off 0.1% y/y; German January manufacturing orders fell 1.5% m/m; and German January industrial output was up 1.8% m/m and 6.9% y/y.

Technical Outlook

Last week’s high (1) was a new lifetime high and last week’s low (2) was above the 38.2% retracement of the 1.4438-1.5460 range. The 1.5520/ 1.5854 levels represent upside resistance targets while the 1.5219/ 1.5069/ 1.4979/ 1.4813/ 1.4716/ 1.4631 levels represent downside support targets.