US Dollar:
The greenback continued to advance against most of its major counterparts as risk dominates the markets. Hitting 1 month highs against both Sterling and the Euro while the USD/JPY slipped to a 15-year low of 84.14 as the Japanese Yen rallied across the board. Opposing the huge forces that risk aversion applies to the FX market was the dismal U.S. housing data prompting "a broad knee-jerk reaction against the dollar," with concerns growing that the Federal Reserve will take further steps to stimulate the economy, said Brian Kim, currency strategist at UBS. Such a step would potentially reduce the appeal of holding the dollar. The ongoing worry about the U.S. recovery gives investors cause for concern as to the safety of the worlds safe haven currency.
DATA – USD Durable goods (JUL) House Price index (JUN)
Pound:
The British Pound slipped to a low of 1.5372 as investors continued to scale back their appetite for risk, but the GBP/USD appears to be finding intraday support ahead of the 50-Day SMA at 1.5352. However, as the U.S. dollar benefits from the rise in risk aversion, the exchange rate may continue to push lower which could lead to a break below the 50-Day SMA and would expose the 100-Day SMA at 1.5124. Doubt surrounding the strength of the sterling must be considerable. In fact, skepticism is so prevalent that even the BoE is starting to doubt the future. In an interview, central banker Martin Weale reportedly spoke of a “real risk” for a second recession supported by the group’s recent economic forecasts. Meanwhile, a report the British Bankers’ Asso¬ciation showed loans for home purchases in the U.K. slipped to five-month low of 33,698 in July from a revised 34,575, which was slightly weaker than the 34,000 projected by market participants, and the Bank of England is likely to support the economy throughout the second-half of 2010 as households and businesses continue to face tightening credit conditions.
DATA— No Data
Euro:
The euro remained under pressure during yesterday’s session thanks renewed demand for the safe ha¬ven greenback and the shared currency itself is facing greater fundamental headwinds. The most visible update for the day was the update on the second quarter German GDP reading. The headline reading would confirm the initial record 2.2 percent growth reported for the three month period. Yet, the real concern is not in past per¬formance (especially one that furthers the skew between EU members) and more about future trends. As ex¬pected, exports (8.2 percent growth) and construction investment (5.2 percent) were responsible for the majority of this growth. And, this would only act to confirm suspicions that this pace is not sustainable. These figures are heavily dependent on global growth and strong financial markets – both dynamics that are falling apart. Putting some kinetic energy to uncertainty, we were further met with an S&P downgrade of Ireland’s sovereign credit rating and reports that Greece’s banks are trying to consolidate to avoid failure.
DATA—GER IFO (AUG)
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| GBP/USD | 1.5407 |
| GBP/EUR | 1.2174 |
| EUR/USD | 1.2654 |
| GBP/JPY | 130.20 |
| GBP/AUD | 1.7391 |
| GBP/NZD | 2.1880 |
| GBP/ZAR | 11.3856 |
| GBP/CHF | 1.5864 |
| GBP/CAD | 1.6324 |
| GBP/SGD | 2.0937 |
| GBP/THB | 48.2960 |
| GBP/HKD | 11.9837 red-down; blue-up (snap shot) |
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John Paul Georgiou
Senior Foreign Exchange Broker