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Daily Forex Overview

Tue, Sep 16 2008, 07:28 GMT
by Raivis Zile

Dukascopy Swiss FX Group

Previous session overview

On Monday, the dollar hit a two-month low against the yen as turmoil on Wall Street sent stocks plunging and led currency investors to unwind risky carry trades funded by the low-yielding yen.

But worries over financial markets also drove many investors to buy the dollar due to its status as a safe-haven currency in times of trouble.

The dollar had managed to hold gains against the euro for most of the New York session as Treasury Secretary Henry Paulson said on Monday the U.S. financial system remained sound despite current stresses and he was prepared to take further actions if necessary to maintain stability. EURUSD was choppy, in a range from 1.4308 and 1.4192, but down slightly on the Asian session as traders squared up before what looks to be poor CPI and ZEW Survey data ahead in the London session.

Dollar hit a two month low versus the Yen; the USDJPY continued its slide from earlier in NY. With the Yen in high demand, USDJPY erased its session high of 104.79 early and it a low of 104.00, but could not break through the figure.

Contagion from the storm engulfing America's financial system targeted high-yielding currencies in Asia Tuesday, with the Australian dollar losing over two U.S. cents as risk aversion dominated sentiment. Interest rate futures soared while regional equity markets slumped, prompting nervous traders to rush into safer assets such as government bonds in anticipation of further bad news from the U.S. banking sector.

Market expectation

AUDUSD may show spurt of life, recover to 0.8700 by year end, but pair would then resume downward spiral, hitting 0.7500 in long term. Says weak world prices and slowing demand will offset inflationary impact from weaker AUD.

The U.S. remains squarely in focus, with markets awaiting news on insurance giant American International Group's (AIG) scramble to raise some US$70 billion in cash. Because of the cloud hanging over markets, high yielding carry trades will remain out of favor, with further losses to be expected.

USDCHF falling due to CHF-buying by Asian hedge funds, which typical in time of risk-aversion. Players awaiting German ZEW data, FOMC later in day; if events fuel more risk aversion, pair may decline to 1.0050.

USDJPY may fall below 100 in one to two weeks. Players worry that other financial firms may face trouble and if USDJPY falls close to the psychologically 95.00 level, the U.S government could mount verbal intervention.

Most important events of the day

Published on  Tue, Sep 16 2008, 07:38 GMT