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Forex Daily Analysis

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USD Declines vs. The Yen On Economy Concern

Thu, Jul 9 2009, 12:52 GMT
by Greg Holden

ForexYard

The U.S dollar slid 0.8% against the Yen for a second day on speculation the G-8 leaders may question the greenback's status as the world's reserve currency. Leaders from the G-8 most-industrialized nations are meeting in Italy today to tackle shrinking economies and rising unemployment even after the U.S. pledged $12.8 trillion to end the recession.Economic News

USD - Greenback Retakes Ground Against the Japanese Yen

The U.S. dollar climbed broadly on Wednesday as risk aversion rose on uncertainty about the global economy and U.S. corporate earnings. The greenback was up 0.6% against the EUR at $1.3840, and advanced vs. the British pound to $1.6046 from $1.6072 yesterday when it fell to $1.5985, the lowest level since June 8.

The U.S dollar rallied after the Federal Reserve Chairman Ben Bernanke's speech yesterday, in which he stated that the central bank may extend its emergency-loan program for securities firms into next year, thus spurring confidence among investors. Another support for the USD was the unexpected drop in Oil prices. Crude Oil was traded in yesterday's session $6 lower than the previous day. The Dollar also found some support on Thursday as Japanese importers and investors, including retail investors, hunted bargains in foreign currencies.

However, the U.S. dollar fell more than 3% against the Japanese Yen yesterday to its lowest level since February, as investors continued to shun risk and unwind carry trades. The USD was last down 3.1% against the Yen at 91.99 yen after going as low as 91.82 yen. During Thursday's Asian session however, the U.S dollar has managed to reclaim some of the ground it lost against the Yen in the previous session.

EUR - The EUR Hits its Lowest in 6 Weeks Against the Yen.

On Wednesday, the EUR saw mixed results versus most of its currency pair counterparts. The EUR underwent a bearish trend against the USD, declining close to a 100 pips. Against the Japanese yen on the EUR fell more than 3% yesterday to 127.95, its lowest since mid-May, as investors shunned risk and unwound carry trades.

The Sterling hit a 1 month low against the Dollar, extending its losses after weak industrial output data the previous day reinforced doubts about a UK recovery.
The British pound declined for a 5th day versus the U.S dollar, trading as low as $1.6048, on speculation the Bank of England will increase its asset-purchase program at a monetary-policy committee meeting tomorrow, boosting the supply of the U.K. currency.

The Bank of England will stick tomorrow with its current plan to spend as much as 125 billion pounds in newly printed money to boost the economy, according to economists' predictions. The GBP may fall to a 2 month low against the Yen in coming weeks after it dropped below a support level at 154.08 yen, according to analysts.

JPY - Yen Rallies the Most in 7 Months on Safety Demand

The Japanese yen hit its highest levels in more than 4 weeks against the Dollar on Wednesday as an uncertain outlook for the global economy curbed investors' risk appetite. The JPY advanced versus the EUR as concern U.S. corporate earnings will drop led traders to cancel bets Japan's currency would weaken as the global economy recovered.

The Yen typically rises during times of financial turmoil because Japan's trade surplus means the nation doesn't have to rely on overseas lenders. Japan's currency has climbed as much as 5.5% to 70.96 versus the Australian dollar, the biggest intraday advance since Feb. 10, and appreciated as much as 5.3% to 11.16 versus the rand on speculation the weak U.S. earnings outlook and a drop in stocks will reduce demand for higher-yielding assets.

OIL - Crude Down for 6 Day as U.S Data Raises Demand Concerns

Crude Oil prices declined more than 4% Wednesday to a 7 week low, falling for the 6th straight session, as U.S. oil inventories dropped 2.9 million barrels to 347.3 million last week, the lowest since January, an Energy Department report showed yesterday. The losing streak is the longest since the 6 sessions ended on Dec. 5. Crude has now slumped 14% this month, as investors question whether supply-and-demand fundamentals are sufficient to justify Oil's recent rally above $70 a barrel.

The Organization of the Petroleum Exporting Countries's (OPEC) 2009 World Oil Outlook added to the gloom as it said world demand for Oil may take years to recover from the slump in 2009 because of economic weakness and demand destruction.
The cartel said consumption of its crude would not return to 31 million barrels per day (bpd), the level it averaged in 2008, until 2013.

Technical News

EUR/USD

The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the hourly chart's RSI is already floating in the over-bought territory, suggesting a downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

GBP/USD

The bullish trend is loosing its steam and the Cable seems to consolidate around the 1.61 level. The pair currently sits near the upper border of the hourly chart's RSI, suggesting a downward correction may be imminent. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

USD/JPY

The bearish momentum the pair has shown since the breach of the channel on the daily chart continues. The daily chart's Slow Stochastic is showing the continuation of the trend, and the hourly studies also confirm the bearish notion. Going short might be the right choice today.

USD/CHF

The pair is currently in the midst of a relatively sharp downtrend as the pair is traded at the 1.087 level. However, it seems that the 1.085 level has turned into a very strong support level. If the pair will manage to breach through it, another sharp bearish move might take place.

The Wild Card

Crude Oil

Published on  Thu, Jul 9 2009, 12:54 GMT