US dollar exchange rate is a little stronger against the pound and euro

Foreign Exchange Outlook : The US dollar exchange rate is a little stronger against the majors but continuing to slide against the japanese yen, albeit not yet to the crash-scenario level. The euro rose yesterday morning to a peak of 1.2761 around noon, but fell back into the close to 1.2641 and to 1.2570 overnight. Market News reports that a “major Dutch name” was behind the drop. Then the rest of Europe came in this morning around 4 am EST and pushed it up a bit.

More interesting is the US dollar to Japanese yen. From just over 100 near the beginning of the month (Nov 4), the US dollar to Japanese yen has slid progressively lower to 95.98 at 7 am this morning, punctuated by a spike to 94.44 last week. Conventional wisdom has it that the Japanese yen is destined to return to the low and beyond it to 90 or 85. The reason is that the Japanese yen is a safe haven for those to whom the yen is the home currency and those who seek refuge from riskier and higher yielding currencies/assets. Some currency analysts also hold the view that Japan will outperform the US and Europe in the current crisis, which is the triumph of hope over experience. The government said today that it will consider a bigger, second stimulus (when we don’t have clarity on the first stimulus plan).

But near-term, we see a hand drawn technical support line at 94.64 on the hourly chart, so we are in “prove-it” mode. Another facto rears its ugly head intervention by the BoJ, which some observers expect with full confidence if the yen hits 90. If the BoJ were not to sterilize intervention proceeds, money supply would rise, which is probably not a bad thing in the context of Japan’s contracting economy.

Pound Sterling continues to get a lift from profit-taking and some buying Pound Euros on the sense that it had been terribly oversold, but it lacks any real momentum in its own right. As for the oversold story, consider that it was at 2.0150 in July and fell to the new lowest low of 1.4555 last Thursday. A rebound to just over 1.5000 is not abnormal in light of such a crash, even if unsupported by the bad data released yesterday and universal expectations of huge rate cuts yet to come, perhaps another 200 bp. Market News notes that sterling buyers yesterday included Asian central banks. But a technical rebound has technical boundaries. Sure enough, the pound peaked right at the linear regression trendline on the hourly chart overnight (1.5090) and may be dipping now.

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Barbara Rockefeller
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