Dollar Gains As Stocks Plunge

Daily Forex Fundamentals | Written by CMS Forex | Oct 10 08 01:10 GMT |

The dollar rose against most key currencies on Thursday as US stocks plunged and the pessimism for the global economic and financial outlook deepened. In a sign of seriousness, President George W. Bush will address the nation on state of the economy on Friday and will also take the unusual step of meeting at the White House on Saturday with G-7 finance ministers and the heads of the International Monetary Fund and the World Bank. The Australian dollar rose against the dollar and other key currencies, but pared gains as US stocks fell. The aussie had become extremely oversold, as we discussed in yesterday's report. The Canadian dollar dropped to the lowest level since April 2007 as crude oil declined and Canada's commodity exports fell the most in three years. The euro, sterling and Swiss franc fell as the banking crisis deepened. The USD/JPY tested resistance in the morning but pared most of its gain as stocks plunged. The Dow Jones industrial average dropped 678.91 points, or 7.3%, to 8579.19. The USD/JPY has resistances in the 103- and 105-areas and supports at the 98- and 96-handles. The trend is down. As long as there is no improvement in the stock market, the USD/JPY is likely to fall. Financial and Economic News and Comments US & Canada US initial jobless claims fell a less-than-expected 20,000 on a seasonally-adjusted basis to 478,000 in the week ending October 4, data from the Labor Department showed, as the effect of recent hurricanes on jobless claims faded. Hurricane Ike in Texas and Hurricane Gustav in Louisiana added 17,000 in unadjusted claims last week, down from 45,000 the previous week, the government estimated. The 4-week average of new jobless claims rose 8,250 to 482,500, the highest since October 2001 and well above levels typically consistent with declines in monthly employment. Continuing jobless claims in the week ending September 27 surged 56,000 to 3,659,000, the highest since June 2003. The unemployment rate for workers with unemployment insurance remained at 2.7%. Overall, the figures show a continued deterioration in the US labor market, pointing to a tenth straight monthly decline in nonfarm payrolls in a recessionary economy. US wholesale inventories rose a more-than-forecast 0.8% m/m to a seasonally adjusted $445.39 billion in August, following July's upwardly revised 1.5% m/m increase, according to data from the Commerce Department. Wholesale sales fell 1.0% m/m in August to a seasonally adjusted $404.86 billion, the sharpest drop since January 2007, following July's revised 0.8% m/m decline. Inventories rose 11.1% y/y, while sales gained 13.4% y/y. The August data signal that middlemen were stuck with unintended buildup as monthly sales declined amid the recession. Europe Germany's trade surplus narrowed to €10.6 billion in August from July's revised €13.8 billion, the Federal Statistics Office said. Meanwhile, the current account declined to €7.3 billion in August, following July's upwardly revised €11.9 billion. Imports fell 2.5% m/m after July's upwardly revised 7.5% m/m gain. Exports unexpectedly declined 0.5% m/m following July's1.7% m/m fall. Germany's wholesale prices declined 0.6% m/m in September after falling 1.8% m/m in August, the Federal Statistics Office said. Wholesale prices advanced 5.8% y/y following August's 7.4% y/y gain. The UK's visible trade balance showed a £8.198 billion deficit in August, following July's £7.667 billion deficit, revised data from the Office for National Statistics showed. The non-EU trade balance widened to a £5.165 billion deficit in August from a revised £4.788 billion deficit in July. The total trade balance showed a £4.737 billion deficit following July's revised £4.763 billion deficit. UK imports totaled £29.528 billion in goods and services, a decline from July's £30.578 billion, while exports totaled £21.33 billion following July's £22.34 billion. UK housing market conditions remain challenging with UK housing prices declining 1.3% m/m in September following August's 1.8% m/m fall, the Halifax Bank of Scotland reported. House prices dropped 12.4% y/y after August's 10.9% y/y fall. The European Central Bank said in its monthly report for October that an aggravation of the financial market turmoil added downside risks to growth. “In the euro area, upside inflationary risks have recently decreased further. It remains imperative to avoid broad-based second-round effects in price and wage-setting,' the ECB said. “Keeping inflation expectations firmly anchored in line with our objective and securing price stability in the medium term will support sustainable growth and employment and contribute to financial stability.' ECB policy makers see slower European economic growth, leaving the door open for further rate cut if inflation continues to slow. “We have to expect very weak growth for at least several quarters,' ECB Executive Board member Jürgen Stark said. The ECB will have to cut its 2009 economic growth forecast from 1.2% and “the inflation rate could fall more quickly,' ECB Executive Board member Lorenzo Bini Smaghi said. Similarly, the Bank of England may follow its half-point rate cut with another reduction if the financial crisis does not abate, former Bank of England policy maker Christopher Allsopp said. Asia-Pacific Australia's unemployment rate climbed to 4.3% in September from 4.1% in August, the Statistics Bureau said. The number of people in work increased 2,200 in September, the smallest monthly gain since May's employment decline. The participation rate was unchanged at 65.1% in September. Overall, the numbers show the Australian labor market is softening amid a slowing Australian economic expansion and global financial-market turmoil. Joining the coordinated global rate-cut action, the Bank of Korea and Central Bank of the Republic of China (Taiwan) cut their benchmark rates by 25 basis points and the Hong Kong Monetary Authority lowered its base rate to 2.0%. The Bank of Japan, which left its policy rate unchanged at 0.5% this week, injected ¥2 trillion ($20 billion) into the financial system. The Reserve Bank of Australia, which cut its key rate by 1 percentage point this week, added A$3.49 billion ($2.3 billion) to money markets. The Reserve Bank of New Zealand said it will increase the range of securities it accepts from lenders to help boost liquidity FX Strategy Update EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY Primary Trend Negative Neutral Negative Neutral Negative Neutral Neutral Secondary Trend Negative Negative Negative Positive Positive Negative Negative Outlook Negative Negative Negative Positive Positive Negative Negative Action Sell Sell None None Buy Buy None Current 1.3587 99.49 1.7080 1.1287 1.1477 0.6819 135.17 Start Position 1.3803 109.45 N/A N/A N/A N/A N/A Objective N/A N/A N/A N/A N/A N/A N/A Stop 1.4350 106.75 N/A N/A N/A N/A N/A Support 1.3500 98.00 1.7200 1.1000 1.0600 0.6500 130.00 1.3000 96.00 1.7000 1.0600 1.0300 0.6300 125.00 Resistance 1.4000 103.00 1.8000 1.1500 1.1500 0.8000 145.00 1.4300 105.50 1.8500 1.1900 1.1500 0.8500 150.00 Hans Nilsson Capital Market Services, L.L.C. www.cmsfx.com ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. 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