exposure to Eastern Europe caused the euro exchange rate to fall

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US dollar exchange rate held flat against the euro exchange rate yesterday in a range of 1.2725 to 1.2825 and without direction, but overnight the news that Moody’s may downgrade a slew of European banks because of their exposure to Eastern Europe caused the euro exchange rate to fall off a cliff from 1.2765 to 1.2656 in a single hour. After that the euro exchange rate has crept a bit lower to 1.2600 at the lowest. The euro rate went on the defensive also because of a new rise in risk aversion on falling equity markets worldwide yesterday.

Technically, it was helpful to the dollar exchange rate that the euro failed to match and surpass highs last week, putting in a series of lower highs. Some foreign exchane analysts now say the eurozone’s financial sector woes could take the euro rate down to test the Oct 28 low of 1.2329 in a flash. We note that the channel bottom on the hourly chart by 6 pm this coming Friday is 1.2126. Do not expect such a level at a speedy pace - prices never move in a straight line.

We are not getting the usual opposite effect in dollar to japanese yen, where the US dollar rose to 92.76, breaking last week’s high and possibly marking the beginning of a new move in the yen. Some forex analysts think that Japanese risk aversion has already been satisfied - i.e, everyone who was going to repatriate trading and investment money to yen has already done so. It won’t be long before we start hearing about the “normal” March repatriation flows that supposedly push the yen up as the Japanese fiscal year comes to an end on March 31. This is a myth. We get a rise in the yen in March less often than we get a drop, but a couple of years it was true and in size, so the story lingers. This time we have the dreadful GDP numbers yesterday to contribute drag to any yen rise.

Pounds to US Dollars = 1.4400

Pounds to Euros = 1.1174

Euro to Pounds = 0.8947

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Barbara Rockefeller

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Pound and Euro Exchange rate fall again against the US Dollar

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

Yesterday a draft EC paper, drawn up together with the ECB, was released. It recommends the "bad bank" approach to the crisis as the least budget-heavy way to rescue banks. This assumes the bad bank toxic assets can eventually be sold for a profit… How to get started? "In order to limit this budgetary impact, one could consider combining a bad-bank approach and asset insurance whereby bad assets are transferred to a separate entity which benefits in some way from a government guarantee," the report suggests, according to Market News.

Meanwhile, officials in the UK are defending quantitative easing, aka buying Gilts, as the first line of defense. BoE Gov says the Bank has a mandate to hold inflation at around 2%--not zero. It’s a symmetrical obligation, meaning the Bank has to create inflation. The US Fed may end up in the same place, as Bernanke has suggested, but is holding off as long as it can. So far the ECB rejects any thought of quantitative easing, mostly because it has a "no bailout" clause and is technically forbidden to buy government paper lest it be charged with favoritism.

Pounds to Euros = 1.1087
Euros to Pounds = 0.9003

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Barbara Rockefeller
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pounds to us dollar made a strong showing on the Barclay's news

Foreign Exchange : The US dollar Exchange Rate is losing ground this morning across the board on a reduction of risk aversion, which was occasioned (oddly enough) by Barclays' saying that it had such strong earnings last year that it doesn’t need to ask the UK government for a capital injection. The foreign exchange market is very thin because of the Chinese New Year that has closed most markets in Asia, and foreign exchange traders are also somewhat confused by the giant rise in oil and gold on Friday. This seems to be the key reason for the Canadian dollar to be coming back strongly against the US Dollar rate.

On Friday the market pared short euro positions for no particular reason we can find except profit-taking and the desire to be square in case something happened over the weekend. During the day, the euro exchange rate rose from 1.2763 before the New York open to a high of 1.3035 in the afternoon before leveling off. Today it slumped until Europe came back in and caused a recovery to 1.3022 so far. If the US market mimics the European market, we could get a test of last week's intermediate high just shy of 1.3100 or 1.3386 from the week before.

Similarly, pounds to us dollar made a strong showing on the Barclay's news, but as the US starts getting active around 8 am, the upmove is already fading. The Japanese yen remains firm although on the north side of a pivot around 88.75, but soft against the euro exchange rate around 116. Sakakibara sees the equivalent of parity (100 yen per euro) at some point soon, so these are counter-trend corrections.

Pound rallies against the Euro exchange rate - at last

Foreign Exchange Currency Outlook : The US dollar rate is rising strongly this morning pretty much across the board, from a high of 1.4719 on Dec 18 to 1.3918 at the Friday close in New York to 1.3657 so far this morning. The move breaks the linreg channel drawn on the hourly chart and also the 50% retracement of the December move up in the euro. The 62% Fibonacci retracement comes out at 1.3377 - but that’s just the recent move. If we go back to the lowest euro exchange rate low last Oct 28 (1.2335), the 62% retracement is 1.3246.

The euro rate is suffering in part on expectations of really bad data this week, including retail sales, and also on a dovish comment from ECB VP Papademos, who said over the weekend that rate cuts might be needed to guard against recession.

Might be?

We have a flood of bad eurozone data today and it’s only Monday.

The odd move is the US dollars rise against the yen, priportedly on a cascade of carry trade unwinds, also breaking the linear regression channel on the hourly chart and actually touching the 62% retracement of the move down from the intermediate high on Nov 25 (97.42) to the low in mid-Dec at 87.19. The 62% level is 93.51. If we expand the timeframe back to the August dollar high of 110.67, the 62% retracement is 101.68. As you know, Dear Reader, we think Fibonacci numbers are superstitious crap, but a lot of people observe them so we must be vigilant.

We have a 3-week dollar high against the euro and a 4-week high against the yen. Sterling is not as weak, which Market News explains as "the pound able to take full advantage of general pressure on the euro. Sterling strength was aided by a euro-sterling sell recommendation by Goldman Sachs, along with expected sterling demand to emerge at the 1100GMT fix linked to HSBC's quarterly dividend payments and UK oil companies' sterling repatriation needs."

Bye For Now Barbara Rockefeller
Foreign Exchange Trading
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The US dollar put in some solid gains yesterday during the US session, reversing an early rise in the euro exchange rate

Euro Exchange Rate Outlook :

The US dollar put in some solid gains yesterday during the US session, reversing an early rise in the euro exchange rate to 1.2893 to a low of 1.2572 by 6 pm. Market News says the market was exceptionally thin. But in Asia and Europe so far today, the euro rate is coming back up off the low to retrace about 75% of yesterday’s drop and we are suddenly newly wary of breaking yesterday’s high.

While we always have to be ready for a big countertrend moves, this one comes out of left field and we can’t find a decent explanation. Market News and Bloomberg both suggest that falling interest rate spreads and rising equity markets in Europe for the 6th day are a cause for acceptance of risk. But only yesterday the European Commission confirmed a diagnosis of recession. The ECB is expected to cut euro mortgage rates on Thursday. The US election will likely return a dollar exchange rate friendly Obama, although the prospect of a disputed vote may be causing harm, however small the probability of that outcome. To buy euros on rising stock markets seems a frivolous thing, doesn’t it? Calling it a "perception of risk reduction" is just putting semantic lipstick on what is still a pig.

The dollar to japanese yen is breaking yesterday’s high of 99.64 but only by a little. It’s a minor move up off the low late last night at 98.48, and barely worth mentioning except this is also the high from last week, and a higher high is always notable, even if the move lacks momentum. Many observers forecast a rise to the high before that at 103, and that would be a true breakout. Remember, a drop in risk aversion and embrace of risk is the only reason to believe in this scenario, and therefore a big new risk Event could reverse it in minutes. We say the market for yen crosses is not acknowledging the depth of the economic trouble to come.

The NKS has a story today on demand for "cheap euros" from Japanese retail investors. This accounts for a very big amount, unlike in the US. “The European common currency traded above 160 yen until late August, but it slumped to the 113 yen range on Oct. 24, when a deepening financial crisis in the eurozone sparked panic selling. The sharp fall prompted many Japanese individuals to buy euros for yen. Some were planning to make a trip to Europe in the near future, but many others were looking to lock in forex gains, apparently in the belief that the euro will recover its value against the Japanese yen sooner than later. Some of these investors formed a long line at a foreign-exchange corner of a major bank here last week. Demand for the euro was so strong that the currency remained in short supply at the branch throughout the week." The writer of the article disapprovingly adds, "In any event, the fact that many Japanese are opting to hold their assets in cash, albeit in foreign currency, appears to demonstrate a serius loss of investor confidence resulting from the ongoing financial crisis."

Pounds to Euros currently 1.2300

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Barbara Rockefeller
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