Dollar Falls to Near Record Low Versus Euro on Growth Concerns

Aug. 6 (Bloomberg) -- The dollar fell to near a record low versus the euro on concern subprime mortgage losses will slow the economy and prompt the Federal Reserve to cut interest rates.

The dollar touched the lowest in more than four months versus the yen as traders raised bets the Fed will lower rates as soon as October after a U.S. report on Aug. 3. showed companies added fewer jobs last month than economists forecast. The yen rose versus the New Zealand dollar and pound as stocks declined in Asia and Europe, prompting investors to repay Japanese loans used to buy higher-yielding assets.

``With the potential for lower interest rates and growth in the U.S. economy, and the rising fear of subprime contagion, the market will continue to abandon the dollar,'' said Greg Salvaggio, vice president of capital markets at currency-trading company Tempus Consulting in Washington. ``Dollar weakness will continue to rule the market.''

The U.S. currency fell to $1.3801 per euro at 10:10 a.m. in New York, from $1.3773 on Aug. 3, earlier reaching $1.3839, near a record low of $1.3852 reached on July 24. The dollar declined to 117.85 yen, from 118.05, and touched 117.19, the weakest since March 29. Salvaggio said the dollar will fall to $1.44 per euro by year-end.

The New York Board of Trade's DXY dollar index fell below 80 for the first time since September 1992. The index reached 79.957 before reaching 80.179.

`More Downside'

``It's certainly a significant breakthrough and could be a precursor of more downside if the Fed signals a shift in policy tomorrow,'' said Boris Schlossberg, senior currency strategist in New York at DailyFX.com.

Federal funds futures show traders see a 72.4 percent chance the Fed will cut its 5.25 percent benchmark rate by October. The odds were 5.9 percent a month ago. The Labor Department said on Aug. 3 the economy added 92,000 jobs in July, compared with 126,000 in June and the 127,000 forecast in a Bloomberg survey.

The dollar has lost 1 percent in the last five days against the euro on speculation Fed policy makers will voice concern about slowing growth at their meeting tomorrow. The bank will leave borrowing costs unchanged at the meeting, according to a separate survey

The pace of leveraged buyouts has slowed more than 33 percent since June, data compiled by Bloomberg show. Investors are cutting back on riskier assets such as the loans and bonds that fund LBOs after being burned by losses from U.S. subprime mortgages.

Late Payments

American Home Mortgage Investment Corp. filed for bankruptcy today and became the second-biggest residential lender to seek court protection this year. The filing added to signs that late payments have spread to homeowners with good credit records.

``With the subprime woes intensifying, the Fed might make a reference to this in their statement,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``It's negative for the dollar.''

A 2.7 percent decline in the Standard & Poor's 500 Index on Aug. 3 spread to Asian and European markets, encouraging investors to pare so-called carry trades. The Morgan Stanley Capital International Asia Pacific Index of shares dropped 1 percent, and Europe's Dow Jones Stoxx 600 Index dropped 3.5 percent.

The Swiss franc, another popular funding currency for the carry trade, rose 0.4 percent to 1.1863 against the dollar. The yen has risen 5.1 percent against the dollar since Bear Stearns Cos. said on June 22 that two of its hedge funds that made bets on subprime loans collapsed.

`Slowing Growth'

``The prospect of slowing growth raised market speculation that it will give the Fed flexibility to ease,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``This points to a negative picture for the dollar. It is important to look at Swiss franc-dollar. If the Swiss can close below 1.18, it will help euro-dollar to break the record level.''

The implied volatility of one-month dollar-yen options touched 10.6 percent, the highest in more than a year.

Higher volatility may discourage carry trades as it exposes these bets to more currency risk. The yen has gained 2.9 percent against the dollar since one-month volatility started rising from 5.725 percent on June 5, the lowest since Bloomberg began compiling the data in 1995.

``We're seeing increased options demand on expectations the dollar will fall more against the yen,'' said Ryousei Ishida, senior vice president of foreign-exchange options at Mizuho Corporate Bank Ltd. in Tokyo.

WEEKLY EUR/USD recap

The euro appreciated vis-à-vis the U.S. dollar last week as the single currency tested offers around the $1.3790 level and was supported around the $1.3610 level. The pair gained about 150 pips last week. Evidence emerged that the U.S. credit shakeout from migrated to other asset classes such as corporate bonds and to other global markets. St. Louis Fed chief Poole said the Fed will “not ignore” market uncertainty and won’t contribute to it with the Fed’s policy. The FOMC is expected to keep rates unchanged on Tuesday and acknowledge the reassessment of risk in the credit markets.

The ECB kept the refinancing rate unchanged at 4.00% with Trichet twice pledging “strong vigilance.” Most traders see a +25bps hike next month by the ECB.

Data released in the U.S. last week saw the Q2 employment cost index was up +0.9% with benefit costs up 1.3%; June personal spending was up +0.1%; June personal incomes were up +0.4%; the core PCE price index was up +0.1% and +1.9% y/y; July consumer confidence improved to 112.6 from 105.3 in June; June construction spending was down 0.3%; July Chicago PMI fell to 53.4 from 60.2; June pending home sales were up 5.0%; the July ISM manufacturing index fell to 53.8 from 56.0 in June; July ADP payrolls were up 48,000; weekly initial jobless claims were 4,000 to 307,000; continuing jobless claims were off 16,000 to 2.53 million; June factory orders were up +0.6%; July non-farm payrolls were up 92,000 with a cumulative -8,000 downward revision for May and June; July unemployment ticked up to 4.6% from 4.5%; July average hourly earnings were up +0.3% m/m and +3.9% y/y; and the July ISM services index moved lower to 55.8.

Data released in the eurozone last week saw German June wholesale sales up +0.1% m/m and +0.2% y/y; the EMU-13 preliminary July HICP moderated to +1.8% from +1.9% in June; the EMU-13 July economic sentiment indicator fell to 111.0 from 111.7; the German July jobless rate at 3.715 million, up 28,000; June retail sales were up +0.7% m/m and off 0.8% y/y; the July PMI survey printed at 54.9, down from June’s 55.4 tally; EMU-13 June PPI was up +0.1% m/m and +2.3% y/y; and June retail sales were up +0.9% m/m and +0.4% y/y.

Technical Outlook

Last week’s high (1) was above the 23.6% retracement of the 1.3261-1.3851 range and last week’s low (2) was just below the 38.2% retracement of the same range. The 1.3840/ 1.3910/ 1.3970/ 1.4040/ 1.4125 levels represent upside resistance targets while the 1.3712/ 1.3626/ 1.3537/ 1.3420/ 1.3302/ 1.3273 levels represent downside support targets.

Dollar Falls on NFP's, to Continue Slide on Coming Fed Meeting

The US dollar tumbled for yet another trading day, as bearish Non Farm Payrolls data sent the greenback significantly lower against major trading counterparts. Officials reported that the domestic economy added a mere 92,000 jobs in the month of July?far below forecasts of a 127,000 gain through the period. The national unemployment rate subsequently jumped to 4.6 percent and left a pessimistic outlook for broader economic growth?leaving the dollar lower in its wake. A later tumble in the Dow Jones Industrial Average produced a small dollar bid, but later signs of recovery have left the trade-weighted Dollar Index at fresh two-week lows.


The Euro continued yesterday?s ascent, adding an impressive 90 points to buy $1.3785 through late New York trade. The British Pound was similarly bid, rallying 50 pips to $2.0423, while the dollar lost ¥0.50 to ¥118.72 Yen.
The widely anticipated Non Farm Payrolls data printed far below consensus estimates and sparked the prolonged USD drop. Soft labor market growth compounded recent fears of domestic economic slowdown and likewise led bond yields significantly lower through the period. (For more on NFP report, please see here) Given overall signs of weakness, markets have clearly begun to show hesitation over the future of domestic interest rates. The December Eurodollar futures contract, which settles to domestic short term interest rates, has now priced in a near 100 percent probability of a Federal Reserve 25 basis point rate cut by year-end 2007. Clearly, such expectations prove very bearish for the dollar?implying that further greenback losses are likely.

Later morning ISM Services data only further unsettled sentiment on the US economy, with the critical services sector showing its slowest growth in four months. The below-forecast headline print coincided with a lower Prices Paid result, implying that inflationary pressures continue to moderate in the broader services economy. Combined with yesterday?s ISM Manufacturing news and previous PCE Deflator prices figures, the Services report suggests that the Federal Reserve may significantly soften its stance on monetary policy through its upcoming meeting. According to DailyFX Currency Analyst Terri Belkas, Tuesday?s FOMC meeting may bring even further US dollar weakness.
Stock markets moved broadly lower on the day?s trade, with the S&P 500 a full percentage point off of yesterday?s close at 1,457.75. The NASDAQ Composite was likewise strongly lower, losing 0.9 percent 2,553.11. Large cap stocks were the least affected by the declines, however, with the Dow Jones Industrial Average losing a smaller 0.5 percent to 13,391.
Fixed income markets took advantage of recent market turmoil to head significantly higher on the trading day. The benchmark 10-year note traded nearly half a point higher to 98 and 13/32, with yields dropping to fresh three month lows of 4.70 percent.
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I read from dailyfx forum

Fundamental Outlook at 1400 GMT (EDT + 0400)

€

The euro lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3650 level and was capped around the $1.3680 level. Today’s range was relatively thin absent many economic data. As expected, European Central Bank kept its main refinancing rate unchanged at 4.00% today but surprised the markets with a statement from ECB President Trichet wherein he stated “strong vigilance is of the essence to ensure that risks to price stability over the medium term do not materialize.” Based on the ECB’s past use of similar statements, most traders believe the ECB will tighten monetary policy by +25bps in September. Data released in the eurozone today saw EMU-13 June producer price inflation up 0.1% m/m and 2.3% y/y. In U.S. news, weekly initial jobless claims were up 4,000 to 307,000 while continuing jobless claims were off 16,000 to 2.53 million, Also, June factory orders were up +0.6%, an improvement over May’s -0.5% level. Tomorrow’s July non-farm payrolls number will be closely watched by the markets and estimates have been scaled down on account of yesterday’s weaker-than-expected ADP payrolls report. Euro bids are cited around the US$ 1.3555 level.

¥/ CNY

The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.25 level and was supported around the ¥118.35 level. A late-day rally in U.S. equity markets yesterday saw diminished demand for yen as traders bargain-hunted and early yen gains in the Australasian session reversed course overnight. A Japanese Ministry of Finance official anonymously reported that most yen carry trades are “resistant to exchange rate fluctuations.” Data released in Japan overnight saw the July monetary base fall 2.3% y/y, down for the seventeenth consecutive month, while foreign investors were net sellers of Japanese equities for the first time in five weeks, selling ¥291.1 billion last week. The Nikkei 225 stock index gained 0.67% to close at ¥16,984.11. Dollar bids are cited around the ¥117.25 level. The euro gained marginal ground vis-à-vis the yen as the single currency tested offers around the ¥163.00 figure and was supported around the ¥161.55 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥240.15 and CHF 98.30 levels, respectively. In Chinese news, the yuan’s central parity rate was set at CNY 7.5723 vis-à-vis the U.S. dollar, up from CNY 7.5660.

Yen Falls From 3-Month High Versus Euro as Risk Aversion Abates

Aug. 1 (Bloomberg) -- The yen fell from a three-month high versus the euro after U.S. stocks rallied, allaying concern that losses in subprime mortgages will hurt credit markets and growth.

The Japanese currency earlier gained against the euro and dollar as investors cut riskier assets funded by loans in Japan, a practice known as the carry trade. At 0.5 percent, Japan has the lowest interest rate among industrialized nations. The U.S. subprime debacle has led traders to sell stocks and bonds in countries such as Turkey, Iceland and Brazil.

``We are seeing a temporary relief after the sell-off overnight in riskier assets,'' said Samarjit Shankar, director of global strategy for the foreign exchange group in Boston at Bank of New York Mellon. ``The market is reassessing the contagion from the credit market. It isn't clear how bad the subprime problem is and its impact on other sectors.''

The yen declined 0.3 percent to 162.71 per euro at 10:22 a.m. in New York. The Japanese currency earlier touched 160.47, the strongest since April 24. The yen also traded at 118.70 per dollar, from 118.61 yesterday. The Japanese currency earlier climbed to 117.60 per dollar, breaching the 118 level for the first time since April 19.

from 4xfindme

USDCHF,USDCAD Dollar continues to show positive dynamics, but alarms around it are still kept...

19:28 08/01/2007

So, yesterday's releases on economy of the USA were again positive. As a result it also brought at first to end of correction of the European currencies against dollar, and then, at the Asian session and since the beginning of European one today to dollar growth against the basic currencies.

Weakness of the American currency is still kept only against low-yield currencies such as the Japanese yen and the Swiss franc, which continued their growth. Here it is necessary to note nevertheless that the situation in the world stock markets continues to be stabilized, that, as a result, will most likely lead not only to delay of strengthening of the Japanese currency, but also will point out the end of fortnight correction of the basic currencies against yen and franc.

As a result, if today's data on business activity and on home sales for June in the USA will not bring unexpected surprises appeal of carry trade again will make yen cross-rates upward.

Let's remind, that yesterday's data on consumption and incomes for June in the USA, having been almost at a level of forecasts, did not lead to any change of a situation in the market.

So, an index of personal consumption in the USA made +0.1 % for June, at the forecast of +0.1 %, and the previous value of +0.5 %.

And the labor cost index in the USA for the second quarter made +0.9 %, at the forecast of +1.0 %, and the previous value of +0.8 %.

However, a pleasant surprise for dollar bulls became index of consumer confidence Conference Board in July which showed not only growth above predicted values, but also reached maximal values for last six years.

So, the parameter reached a level of 112.6 points, at the forecast of 105 points. And the previous value was also revised upwardly, from 103.9 points in June up to 105.3.

And components of the survey also supported a dollar exchange rate. We remind that the index of expectations in July made 94.8 points in comparison with 88.8 points, and the index of a current situation made 139.2 from 129.9 earlier. Thus, the index of annual expectations unexpectedly demonstrated decrease to 5.1 % from 5.4 % in June.

"A fly in the ointment" was the publication of Chicago PMI which was considerably below forecasts. We remind that a parameter in July achieved 53.4 points, at the forecast 58.0 and the previous value of 60.2.

However, many components of the report showed positive dynamics. For example, the index of the paid prices made 73.1 in comparison with 68.1 earlier, and the index of employment grew from 52.7 up to 61.6 points.

And the index of new orders continued its decrease and reached 53.4 points against 65.7 in June and 71.1 in May. Also the index of production demonstrated drop, having dipped to 59 points in July against 66.5 earlier. And the index of stocks decreased from 55.9 up to 55.1 points.

As a result, we do not exclude some correctional growth of euro and pound against dollar. And it, in turn, will allow dollar/franc "dive" more deeply under key levels 1.1960 - 1.2020, and to collect stops. The purpose of such movement is 1.1860.

At the rate the dollar/Canadian correctional movement downwards was ripened also. We recommend to sell the pair from the levels close to 1.0670 with stop, placed above 1.0700. The purpose of this correction id a level 1.0500.

from www.openforex.com

FOREX ANALYSYS

FOREX EUR/USD ANALYSYS

Fundamental Outlook at 1400 GMT (EDT + 0400)

The euro gained marginal ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3740 level and was supported around the $1.3690 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.3565 to $1.3850. Today’s range was relatively limited as traders continue to digest a variety of factors, not the least of which is the ongoing correction in the U.S. credit markets. Subprime mortgage industry problems continue to worsen and risk aversion is growing. Many traders believe the reassessment and repricing of credit risk will actually strengthen the U.S. dollar as traders will reduce emerging market exposure and exposure in foreign markets in favour of more highly-rated assets such as U.S. Treasuries. In recent weeks, the yield on the 10-year U.S. Treasury Note has fallen from 5.31% to 4.83%, evidence that market participants are reinvesting in assets with higher credit ratings. Interestingly, the U.S. dollar’s recent gains have coincided with a growing perception the subprime mortgage problems may force the Federal Reserve to lower interest rates this year. Data released in the U.S. today saw June new home sales off 6.6% to an annualized 834,000 units, weaker-than-expected. The Fed’s Beige Book was released yesterday and reported consumer prices continue to expand “at a moderate rate.” The Federal Open Market Committee will next deliberate interest rates on 7 August. Other data released today saw weekly initial jobless claims fall 2,000 to 301,000 while continuing jobless claims were off 19,000 to 2.55 million. Additionally, new orders for durable goods were up 1.4% m/m after declining a revised 2.3% in May. Excluding transportation goods, durable goods orders were off 0.5% and non-defense capital goods orders excluding aircraft orders were off 0.7% after falling 1.5% in May. It was also reported that June building permits were revised to -7.0% from -7.5%. In eurozone news, the German July Info business climate index fell to 106.4 from 107.0 in June while the EMU-13 M3 money supply was up 10.9% in June from 10.6% in May. These data suggest the European Central Bank may be inclined to raise its refinancing rate by +25bps to 4.25% in September followed by another +25bps hike to 4.50% by the end of 2007. Euro bids are cited around the US$ 1.3635 level.