GVI Forex Analysis: Far East Open for December 15, 2008

Pre-Far East Open

•End of year trade continues to see the USD tumble against European currencies. USD weakness is often expected as a seasonal pattern by traders. Gold and oil are mixed. Dealers are looking ahead to a Fed policy easing Tuesday.

•Another focus remains on the auto bailout plan. The world did not end after an accord was not reached over the weekend, but yearend apparently is the dropdead date. The last thing the U.S. needs is another financial shock.

•The extent of the exposure to the Madoff fraud continues to be investigated. Institutions around the globe have been impacted by the mess.

•Far Eastern bourses closed sharply higher despite a poor quarterly Tankan survey from Japan. European bourses ended modestly lower. The current call for the U.S. close is for weaker. U.S. Bond prices are stronger.

•Key data U.S. Tuesday include: November CPI, Housing Starts and the FOMC policy decision. A cut in the Fed Funds rate of either -50bps or -75bps is expected.

Risk Warning:

Foreign exchange trading and investment in derivatives can be very speculative and may result in losses as well as profits. Foreign exchange and derivatives trading is not suitable for many members of the public and only risk capital should be applied. The website does not take into account special investment goals, the financial situation or specific requirements of individual users. You should carefully consider your financial situation and consult your financial advisors as to the suitability to your situation prior to making any investment or entering into any transactions.

source

FOREX-US dollar tumbles after Fed cuts rates to record low

* US dollar tumbles versus euro, yen after Fed rate cut

* Fed cuts rates more than expected to record low

* Fed says may keep rates at "exceptionally low levels"

* Yen nears 13-year high; boosting intervention talks

(Adds comments, details, updates prices)

By Vivianne Rodrigues

NEW YORK, Dec 16 (Reuters) - The U.S. dollar tumbled versus the euro and the yen on Tuesday after the Federal Reserve cut its benchmark interest rates more than expected to a record low, further diminishing the appeal of the greenback.

The Fed cut its federal funds rate target to a range of zero to 0.25 percent from the previous target of 1.0 percent, and said it would use "all available tools" to dispel a year-long recession. For details, see [ID:nTRT000354].

Financial markets had expected the Fed to lower rates by no more than three-quarters of a point.

"The dollar is falling against all major currencies... because it was a larger-than-expected cut," said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington.

"On one side, we effectively have a zero interest rate in the U.S., and on the other side, the Fed has sent a sign that they are ready to use all tools to help the U.S. economy out of recession," he added.

In late afternoon trading in New York, the euro was up about 3.0 percent at $1.4099 , a 2 1/2-month high. It traded as high as $1.4144, more than five cents above its session trough of $1.3631.

The U.S. dollar had its biggest daily decline against the Swiss franc since 1995. It last traded 3.2 percent lower against the European currency at 1.1205 to the dollar .

Versus the yen, the dollar was down 1.6 percent to 89.06 , within a striking distance to a 13-year low against the Japanese currency.

The Fed's rate cut pushed the fed funds target to its lowest level on record, and the central bank said it would keep it at "exceptionally low levels for some time."

The surprise move put the Fed in unprecedented policy territory, but analysts mostly approved of the move.

"It's a highly unorthodox and creative step," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon in New York. "We think it's the best possible move for the U.S. consumer and for the financial market."

U.S. stocks rallied after the announcement, while the InterContinental Exchange's U.S. dollar index .DXY, which tracks the value of the greenback against a basket of six currencies, fell 1.8 percent to 80.628.

The Fed's rate cut move is "an incredibly strong public declaration that the Fed will throw everything it has in attempting to stabilize the financial and economic situation," Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co, told Reuters.

"After this 'wow' statement, there should be no question about policy willingness," he added.

The U.S. dollar also tumbled against the Australian and New Zealand dollars in a sign the Fed's move may be positive for risk appetite and riskier assets.

GOLDMAN SACHS, BANK OF JAPAN

Demand for the greenback started to dwindle earlier in the session as investors cut their exposure to risk after Goldman Sachs (GS.N) posted its first loss as a public company.

The dollar's sharp drop in recent days in particular against the yen has raised speculation that Japan may intervene to stem the currency's strength as it nears a 13-year high.

U.S. data released earlier on Tuesday showed new housing starts and permits plunged to record lows in November, while consumer prices dropped at a record rate for a second straight month. See [ID:nN16549579]. [ID:nN15516550].

Analysts and fund managers said the very soft readings on inflation and continued deterioration in the housing sector support views of a very expansionary policy stance.

(Additional reporting by Steven C. Johnson, Wanfeng Zhou and Jennifer Ablan in New York;)

source

FOREX-Dollar takes breather after big Fed rate cut

MARKETS-FOREX (UPDATE 1):FOREX-Dollar takes breather after big Fed rate cut

* Dollar little changed vs yen, not far from 13-year low

* Dollar pulls up from 2-A½ month trough vs euro

* Fed's historic rate cut seen keeping dollar pressured

By Masayuki Kitano

TOKYO, Dec 17 (Reuters) - The dollar hovered near 13-year lows against the yen and 2-A½ month lows versus the euro on Wednesday after tumbling the previous day as the U.S. Federal Reserve slashed interest rates to as low as zero.

In a historic move, the Fed on Tuesday cut its target for the federal funds rate to a range of zero to 0.25 percent, a record low, from 1.0 percent and said it was willing to keep rates low for an extended period.

The Fed said it would use "all available tools" to support the economy, and added that it was mulling possible purchases of longer-term U.S. Treasury debt and would consider other ways to tap its burgeoning balance sheet to support the economy.

source

FOREX-US dollar hits 2-month lows; eyes on US bailout

* Dollar slides across board, hits 2-mth low vs euro

* Dollar hits 2-mth low vs basket of currencies .DXY

* Focus on fate of U.S. automakers, Fed rate decision (Adds comment, updates prices, changes byline, changes dateline, previous LONDON)

By Wanfeng Zhou

NEW YORK, Dec 15 (Reuters) - The U.S. dollar fell to two-month lows against the euro and a basket of currencies on Monday, pressured by uncertainty over the fate of U.S. automakers and reduced safe-haven flows.

The dollar was starting to respond negatively to concerns about further weakness in the U.S. economy, analysts said, after a run of weak data caused an exodus from risky positions and increased flight-to-quality buying in the currency.

Investors shunned the greenback amid fears a failure of one or more of the automakers could exacerbate a year-long recession and drag down other companies.

"The uncertain outlook for the U.S. automakers continues to keep investors wary of over exposure to the dollar at this point," said Omer Esiner, senior market analyst at Ruesch International in Washington.

"We're starting to see a shift in the market where negative data is starting to actually impact the dollar negatively, which is contrary to what we've seen for the better part of the last couple of months," he added. "We're seeing a naturally weaker dollar as we get into the year end, so bad news is only exacerbating the need for investors to just exit their long dollar positions."

In early New York trading, the euro was up 1.5 percent at $1.3570 , after climbing as high as $1.3584, the highest level since Oct. 15, according to Reuters data.

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, hit a low of 82.517 .DXY., the weakest level since Oct. 20. It last traded down 1.3 percent at 82.606.

A more upbeat tone in the global equities market also helped ease extreme risk aversion, reducing the greenback's safe-haven appeal and boosting demand for higher-yielding currencies.

The Australian dollar rose 1.1 percent and the New Zealand dollar was up 1.5 percent .

Against the yen, the dollar fell 0.9 percent to 90.31 , after hitting a more than 13-year high of 88.10 yen on Friday. But yen gains were capped on speculation that Japanese authorities could intervene to stem further currency strength.

BAILOUT IN FOCUS

The White House said on Friday it was considering tapping a $700 billion financial industry bailout fund to prevent a collapse of ailing U.S. automakers. That came after the U.S. Senate on Thursday rejected a bailout plan to avert a possible bankruptcy by one or more of the nation's three automakers.

But U.S. President George W. Bush said on Monday an announcement on a car industry rescue was not imminent, leaving the industry's fate clouded [ID:nN14461208].

Investors also awaited the outcome of a policy meeting by the Federal Reserve on Tuesday to see how close to zero the U.S. central bank will cut interest rates and what alternative measures it will take to boost the economy. The Fed is widely expected to cut rates by at least 50 basis points from the current 1 percent.

"What the Fed says will likely overshadow its rate move," currency strategists at Brown Brothers Harriman, wrote in a research note. "Many investors are looking for insight into where the Fed anticipates ending the rate cuts and what other non-traditional steps will the Fed adopt." (Additional reporting by Naomi Tajitsu in London; Editing by Chizu Nomiyama)

source

US Dollar Loses Correlation With Dow Jones, Forex Market Continues to Track Oil

Forex correlations have taken an interesting turn through recent trading, as the safe-haven US dollar has seemingly lost its link to the US Dow Jones Industrials Average—potentially removing a key pillar of support for the US currency. Dismal risk sentiment previously led to a sharp unwind of USD-short positions, and the Greenback benefited from sharp declines in global risky asset classes. Yet more recent price action left the US Dollar significantly lower despite losses in the DJIA and other risk barometers. All else remaining equal, such a shift in correlations bodes poorly for the USD against similarly risk-sensitive currencies. That being said, the Japanese Yen continues to trade almost tick-for-tick with the Dow Jones and other major equity indices.

Forex Correlations Summary

Forex correlations against Oil, Gold, and the Dow Jones Industrials Average for the past 20 trading days:

Strongest Forex Correlations

US Dollar/Japanese Yen and the US Dow Jones Industrials Average The US Dollar has recently lost its correlation with the Dow Jones, but the Japanese Yen’s link to risk sentiment remains rock-solid. The extremely low-yielding currency has almost invariably rallied in the face of stock market losses, and a persistently sky-high rolling correlation between the JPY and DJIA suggests that this is unlikely to change through the foreseeable future. In fact, some traders report using the Japanese Yen as a proxy for trading movements in the Dow—especially against similarly high-yielding carry trade currencies.
British Pound and the G10 Forex Carry Trade Index The British Pound has shown an increasingly strong link to the G10 Forex Carry trade, and it seems that speculative capital flows have punished the GBP about as much as high-volatility carry trade currencies. According to the Deutsche Bank Carry Trade Basket index, the G10 carry trade has lost about 5 years of previous gains in a matter of months. The ongoing theme of global deleveraging played a very large part in the carry trade unwind, and correlations suggest that the British Pound fell victim to the same dynamic. A continuation leaves the British Pound susceptible to speculative capital flows.
Australian Dollar and Reuters/Jefferies CRB Commodity Index The Australian Dollar has recently renewed its link with global commodity prices—trading virtually lockstep with the popular Reuters/Jefferies CRB Commodity Index. Major export commodities such as iron ore and gold remain a key component of Australian Dollar demand, and sharp drops in raw materials prices tends to lead to similar depreciation in the Australian currency. We envision that such a link will remain strong through the foreseeable future—especially as commodity prices remain extremely volatile.

Weakest Forex Correlations

US Dollar and the US Dow Jones Industrials Average The US Dollar has very recently stopped tracking moves in global risky asset classes—making its correlation with the Dow Jones Industrials Average virtually insignificant. The chart shown shows that the medium-term correlation remains historically high, but this measure ignores the past week of price action. If recent trends are any indication, the US Dollar could lose its safe-haven status in the face of continued global financial deleveraging. Such a shift would prove quite bearish for the previously high-flying US currency.

source

Forex News and Rumors

US Industrial Output Fell Less Than Expected

US Industrial Output was expected to fall by 0.8 percent for the month of November; however, actual output declined slightly less than projections at 0.6 percent. More

Dollar Rally May be Coming to an End

With billions of dollars flooding into the market in the guise of economic stimulus plans and other assorted bail-outs, analysts suggest that the US dollar will fall against most of the major currencies.

“The dollar will go to new lows as the U.S. attacks its currency,” said John Taylor, chairman of New York-based FX Concepts Inc., which manages about $14.5 billion of currencies. More

Oil Cuts Expected Ahead of OPEC Announcement

The Organization of the Petroleum Exporting Countries (OPEC) is expected to announce “significant” production cuts in an attempt to reverse falling crude prices which are hovering near a four-year low. More

Canadian Dollar Gains on Oil Price Increase

The Canadian dollar gained against the US dollar as stock markets rebounded and the price of crude rose on expectations of an OPEC production cut. More

Outlook for UK Pound Worsens

The British pound continued to struggle against the euro and everyday seems to fall to yet another record low. Currently, the euro is at 89.98p and threatens to break through the 90p level and many analysts suggest that the euro could soon be at parity. More

source

Florida forex scam nets guilty plea

A Florida man has pleaded guilty after being found to be the head of fraudulent foreign currency exchange companies.

Mitchell Goldberg has pleaded guilty to two counts each of wire fraud and mail fraud, in a scam that prosecutors say netted $11 million.

Five others were charged with participating in the scheme that was based on the buying and selling of foreign currencies.

In the scam, clients were promised rates of return as high as 300 percent, but, even on poor performance trades, were charged unreasonable commissions

Prosecutors sayd about 475 clients lost about $11.5 million from Goldberg’s operation.

Goldberg could be sentenced to 12 years in prison. He is scheduled for sentencing on February 20th.

source