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Weekly Analysis

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Dollar weakening Expected

Tue, Apr 8 2008, 06:04 GMT
by Benny Menashe

Finotec Group Inc.

We have seen some big moves in the currency market this past week, important data releases were also a factor, such as the non-farm payrolls that came in at -80 from a previous -63, U.S central bank chairman Ben Bernanke conceded for the first time last Thursday that the American economy may slip into a recession. “Recession is possible”, Mr Bernanke said. “Our estimates are that we are slightly growing at the moment”. But there’s a chance that, for the first half as a whole, there might be a slight contraction. The weak jobs figures support the general view that the Fed will be forced to continue cutting interest rates to prevent the recession from becoming a severe one.

The fluctuations in the financial market last week should pale in comparison to the action that we expect to see in the next couple of days, as there will be a lot of economic data due for release from countries around the world, economic data such as the GCC Meeting where Finance officials and central bank governors from the six members of the Gulf Co-operation Council (GCC) will meet in Doha, Qatar to discuss the timetable for monetary union and other matters. There may be a press conference or comments from officials during the day. Comments from the GCC will be monitored closely as speculation over a possible move to break currency links with the US dollar has been important for US dollar sentiment. American Consumer Credit figures will also play a role in the currency market as traders observe the effects it will have on the greenback. Consumer Credit figures Measure the total value of outstanding consumer installment debt, such as credit cards and auto loans. A rising trend has a positive effect on the nation's currency because historically consumer borrowing and spending have a high degree of correlation.

The yen slumped this week as manufacturers' confidence dropped to a four-year low aimed weak consumer confidence in the U.S. ``Easing concern over credit-market losses are making it easy to buy the dollar,'' said Hideki Hayashi, chief economist at Shinko Securities Co. in Tokyo, an affiliate of Japan's third-largest bank. The yen traded at 102.82 against the dollar as of 8:00 GMT 4th of April from 101.85, when it reached 102.16, the lowest since March 12. Bank of America maintains its estimate for the yen to decline to 103 by the end of September and to 108 by year-end, Fujii said, head of economics and strategy for Japan at Bank of America in Tokyo.

The euro fell against the dollar on speculation the slowing U.S. economy will drag down growth in Europe, leading to a reduction in interest rates. ``The euro is poised to fall significantly,'' said Akira Takei, who helps oversee the equivalent of $32.9 billion as general manager of international fixed-income investment at Mizuho Asset Management Co. in Tokyo. ``A slowdown in the U.S. will eventually filter through to Europe. The ECB will be forced to cut.'' The Eur/usd currently stands at 1.5666. 8:00 GMT. Traders will be glued to their screens on Thursday 10th of April 12:45 GMT when the ECB will announce whether or not to cut the interest rate. A rising trend in interest rates has a positive effect on the nation's currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best "risk-free" return on their money, which can dramatically increases demand for the nation's currency.

While it’s difficult to predict the shorter-term swings in today's volatile markets with any degree of accuracy long-term we remain bullish on gold and Crude, as always when markets are bearish and economic turbulence is in the air investors embrace commodities especially the precious metal. Economists believe that the gold rush has started again and could hit the all time high of $1034 oz and beyond especially up and till June of this year. ``We still think the outlook for gold is outstanding,'' Gavin Wendt, analyst at Fat Prophets, said by phone from Sydney today. Bullish factors such as ``economic uncertainties and the U.S. dollar weakness won't change overnight,'' he added. Oil prices were steady on Tuesday the 1st after jumping more than $3 a barrel in the previous session after the U.S. government reported a larger than expected decline in gasoline stockpiles. Traders brushed aside a large increase in crude oil inventories reported by the U.S. Energy Department Wednesday the 2nd, focusing instead on the third straight week that gasoline inventories fell.

Published on  Tue, Apr 29 2008, 09:59 GMT