World economy to slow further on credit crisis: BOJ's Kamezaki

Takamatsu (Japan), December 25, 2008

The global economy could slow further as the ongoing financial turmoil is expected to increasingly affect the real economy, Bank of Japan Policy Board member Hidetoshi Kamezaki said today. While the credit crisis will bring about "strong downward pressures, every region (of the world) is likely to face a deterioration (in its economy), further slowing down the pace of growth," Kamezaki told a meeting of local business leaders in Kagawa Prefecture.

The member of the central bank's interest rate setting panel also said the Japanese economy has seen weakening exports lead to a negative spiral that has adversely impacted the nation's industrial output, employment and individual consumption. On prices, Kamezaki said the country's consumer prices, which earlier this year shot up on rising crude oil prices, will continue to slacken their upward pace.

US Dollar Slump Continues in the Aftermath of Tuesday's Aggressive Fed Rate Cut - More Losses to Come?

Wed, 17 Dec 2008 16:54:01 -0500
By Terri Belkas, Currency Strategist strategist@dailyfx.com

The US dollar index broke straight through the support we noted yesterday at the 50 percent retracement level of 71.31 - 88.40 at 79.85, and extended its losses for the sixth day in a row. The Federal Reserve’s aggressive reduction in the fed funds rate to a record low range of 0.0 percent - 0.25 percent has had a major impact on the greenback, especially as the central bank has essentially indicated that they are shifting their focus away from the economy and on to the financial markets.

Euro, Swiss Franc Surge to Record Highs Against British Pound British Pound the Only Major Currency Weaker Than the Dollar as BOE Minutes Signals More Rate Cuts Japanese Yen Intervention Risks Rise as Rally Accelerates, Commodities Brush Off OPEC Output Cut US Dollar Slump Continues in the Aftermath of Tuesday’s Aggressive Fed Rate Cut - More Losses to Come?The US dollar index broke straight through the support we noted yesterday at the 50 percent retracement level of 71.31 - 88.40 at 79.85, and extended its losses for the sixth day in a row. The Federal Reserve’s aggressive reduction in the fed funds rate to a record low range of 0.0 percent - 0.25 percent has had a major impact on the greenback, especially as the central bank has essentially indicated that they are shifting their focus away from the economy and on to the financial markets. Indeed, from a monetary policy perspective, there isn’t much more that the Fed can do for growth so they may as well direct their efforts toward providing liquidity. The Fed has already announced plans to buy “large quantities of agency debt and mortgage-backed securities” and “stands ready to expand its purchases…as conditions warrant.” The new twist though, is that the Fed is ready to evaluate the possible benefits of purchasing longer-term Treasuries, aka pursue quantitative easing. Simply put, this is a different method by which to bring down interest rates, and it is the potential of such a result that is helping to drive the greenback lower. There won’t be much in the way of key US economic data through the end of the week, and for that matter, through the next two weeks. Given the lower volumes typical of this time of year, it seems like the countdown to 2009 could be quite volatile and punctuated by extensive declines in the US dollar.

BNP Paribas may lose 350 millions euro in Madoff scandal

15 Dec 2008, 0116 hrs IST, AFP
PARIS: French bank BNP Paribas said on Sunday it could lose up to 350 million euros (470 million dollars) in the scandal surrounding New York investment manager Bernard Madoff. BNP Paribas said in a statement that it had no direct investment with Madoff's company but "it does have risk exposure to these funds through its trading business and collateralized lending to funds of hedge funds. "If, as a result of the alleged fraud, the value of the assets of these hedge funds is nil, BNP Paribas' loss could amount to around 350 million euros." Madoff is alleged to have lost up to 50 billion dollars through a pyramid trading scheme which collapsed because of the financial crisis.

Dollar hits 13-yr low vs yen as autos bailout fails

12 Dec 2008, 1013 hrs IST, REUTERS

TOKYO: The dollar hit a 13-year low against the yen on Friday after the US Senate failed to agree on a bailout for US automakers.
The US Senate failed on Thursday night to reach a last-ditch compromise to bail out US automakers, effectively killing any chance of congressional action this year. The $14 billion legislation officially died in the Senate late on Thursday after supporters failed to get enough support in a procedural vote. "It has become really severe for the prospect of the bailout plan," said Mitsuru Sahara, senior manager at Bank of Tokyo-Mitsuibishi UFJ. Traders said there were fewer market participants, making market swings larger, pushing the dollar below 89.00 yen for the first time in 13 years. The dollar fell as low as 88.40 yen, the lowest since 1995. The Eurodeclined 0.4 per cent to $1.3313.

Auto bailout talks collapse over union wages

12 Dec 2008, 0903 hrs IST, AP

WASHINGTON: A $14-billion emergency bailout for US automakers collapsed in the Senate Thursday night after the United Auto Workers union refused to accede to Republican demands for swift wage cuts. Senate Majority Leader Harry Reid said he was "terribly disappointed'' about the demise of an emerging bipartisan deal to rescue the Big Three. He spoke shortly after Republicans left a closed-door meeting where they balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers. Republican Sen. George V. Voinovich, a strong bailout supporter, said the UAW was willing to make the cuts, but not until 2011. Reid was working to set a swift test vote on the measure Thursday night, but it was just a formality. The bill was virtually certain to fail to reach the 60-vote threshold it would need to clear to advance. Reid called the bill's collapse "a loss for the country,'' adding "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight.'' The implosion followed an unprecedented marathon set of talks in Washington among labor, the auto industry and lawmakers who bargained into the night in efforts to salvage the auto bailout at a time of soaring job losses and widespread economic turmoil.

Tokyo stocks open 1.39 per cent lower

12 Dec 2008, 0854 hrs IST, AGENCIES
TOKYO: Japanese share prices opened lower Friday with the benchmark Nikkei-225 index falling 121.43 points, or 1.39 per cent, to 8,599.12 in the first minute of trading.

Nikkei down 0.2 pc after rally, US auto bailout eyed

11 Dec 2008, 0621 hrs IST, REUTERS
TOKYO: Japan's Nikkei average fell 0.2 percent on Thursday after a rally the previous day and on uncertainty over quick approval for U.S. auto rescue plans, pressuring recent gainers such as Advantest Corp.
The benchmark Nikkei slipped 17.98 points to 8,642.26, after ending up over 3 percent the previous day to book its highest close since Nov. 12. The broader Topix dipped 0.07 percent to 833.96.

Euro dips against dollar

9 Dec 2008, 1823 hrs IST, AGENCIES

LONDON: The European single currency dipped against the dollar on Tuesday as the foreign exchange market set aside an encouraging survey on German investor confidence to focus on recession worries. The yen meanwhile rose against the dollar, despite grim data showing that Japan was even deeper in recession than previously feared. In late morning London trade, the European single currency fell to $1.2875 from $ 1.2952 in New York late on Monday. Against the Japanese currency, the dollar dipped to 92.45 yen from 92.77 yen on Monday. Germany's closely-watched ZEW survey of investor confidence showed a surprise rise for December on Tuesday, even as markets fretted over how long the country's recession might last. "The latest German data have brought some respite from the recent run of terrible news, with ZEW investor sentiment recovering a little," said Capital Economics analyst Jennifer McKeown. "Unfortunately, though, the economy still looks set to deteriorate more sharply than is currently anticipated next year." The ZEW economic research institute said its investor sentiment index rose to minus 45.2 points in December from minus 53.5 points in November, coming in better than expected. Analysts had forecast a drop to minus 55 points. "What's more, the fact that the index remains deeply in negative territory shows that far more investors expect the German economy to deteriorate further over the next six months than think that conditions will improve," McKeown added. The euro had shot higher on Monday despite news of a sharp drop in German industrial output in October that raised expectations of further, hefty interest rate cuts by the European Central Bank. Traditionally, lower intrest rate make a currency less attractive to investors even though they can help to boost economic growth. Dealers said the Japanese currency was buoyed by the repatriation of overseas earnings and capital by companies and investors. Trader took in their stride official data showing Japan's economy contracted 0.5 per cent in the third quarter, more than initially thought. "The dollar will probably find it hard to gain ground versus the yen given anticipated repatriation by Japanese investors," Tetsuhisa Hayashi, head of foreign exchange dealing at Bank of Tokyo-Mitsubishi UFJ, said. In London trade on Tuesday, the euro changed hands at 1.2875 dollars against 1.2952 dollars late on Monday, at 118.95 yen (120.16), 0.8698 pounds (0.8689) and 1.5582 Swiss francs (1.5593). The dollar stood at 92.45 yen (92.77) and 1.2111 Swiss francs (1.2037). The pound was at $1.4792 (1.4902). On the London Bullion Market, the price of gold rose to $774.43 an ounce from $767.25 late on Monday.

Dollar mixed before latest economic data

8 Dec 2008, 1800 hrs IST, AGENCIES

LONDON: The dollar was mixed on Monday ahead of a raft of economic data due this week that is expected to reflect a worsening recession in the United States. In morning London trade, the European single currency rose to $1.2880 from $1.2717 late in New York on Friday. The $ climbed to 93.27 yen from 92.77 yen. Upcoming US data this week will include retail sales, consumer sentiment and inflation, which together should give fresh clues on the state of US consumption that accounts for three-quarters of the economy, dealers said. The foreign exchange market meanwhile digested Friday's extremely poor US jobs report which showed the US economy shed 533,000 jobs in November, the highest monthly figure in 34 years and much worse than the 325,000 forecast to take the unemployment rate to a 15-year high of 6.7 per cent. "As traders continue to assess the implications of that huge non-farm payroll reading on Friday, currency markets remain volatile but the dollar is unsurprisingly on the back foot," said CMC Markets analyst James Hughes. "With US automakers and government sponsored stimulus packages likely to be in focus in the near term, it's arguably difficult to see where the next round of dollar support will be coming from," Hughes said. The $ has risen against major currencies in recent weeks, with the exception of the yen, because many investors see the US currency as a haven amid a worsening global economic crisis. More weak data due now could limit the dollar's rise, dealers said. "The greenback's appreciation over the last six months may have left the currency in overbought territory and these retreats aren't really that surprising at all," said Hughes of CMC Markets. "The US November jobs report which revealed the biggest decline in payrolls since 1974 helped to paint a clearer picture of just how bad the recession in the US is turning out to be and this picture looks particularly grim," said Calyon analyst Mitul Kotecha. "Given the limited reaction to the jobs data it is difficult to see markets becoming too excited with the data on tap this week. "Nonetheless, there are a few US releases towards the end of the week that could still provoke some reaction," Kotecha said. Investors were also watching developments in a possible government bailout of the crumbling US auto industry and hoping for a massive stimulus plan from President-elect Barack Obama when he takes office next month." In London trade on Monday, the euro changed hands at 1.2880 dollars against 1.2717 dollars late on Friday, at 120.25 yen (118.05), 0.8613 pounds (0.8659) and 1.5608 Swiss francs (1.5515). The dollar stood at 93.27 yen (92.77) and 1.2113 Swiss francs (1.2202). The pound was at $ 1.4970(1.4677). On the London Bullion
Market, the price of gold rose to 772.47 dollars an ounce from 749 dollars late on Friday.

US Recession Deepening, How Long Can Dollar Strength Hold Up?

Saturday, 06 December 2008 03:58:09 GMT

Written by John Kicklighter, Currency Strategist
It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk.

It’s difficult to assign the US dollar a bullish fundamental bias considering the acceleration of the economy’s recession and the fact that American markets are the epicenter to a global financial crisis; but regular economics do not apply in times like these. In normal market conditions, expected returns hang in a delicate balance with a general tolerance for risk. When yield income – valued through assets in a specific country – drops relative to its international equals, that currency depreciates against its counterparts. This sums up capital flows, carry interest and fundamental speculation in interest rates. However, the setting for the markets is clearly far from normal – just look at the advance in the US dollar last week immediately following the report of a 533,000-person drop in national payrolls. Normal market theory has been thrown out the window as investors are no longer concerned about the potential for return. With volatility holding at levels many times greater than what it was just a year or two ago and global economies sliding into a grim recession, large investors and fund managers are merely looking for a place that their accounts won’t shrink. With time we have seen that that place is US Treasuries. Surely, the market must be desperate for a safe haven with three-month T-bills yielding little more than one basis point and two-year T-notes are paying out 0.9 percent per year. In fact, the entire yield curve is at record lows.
How long can a market go against such a basic law of market theory? That depends on speculators. As long risk sentiment holds as the dominant trend across all asset classes and all markets, caution will keep capital flowing towards safe havens. However, that is not to say that the US will always be the currency that panicked traders will turn to. Massive bailout efforts, rate cuts and stimulus packages have offered a sense of stability for the world’s largest economy; but this combined endeavor cannot prevent a recession or even a natural bear market. And, when financial conditions worsen and the economy continues its slide, policy makers will find they have few options left to curb the pain on a national level. Since US officials have been the most aggressive in their efforts, they could reach their limit first; and then the sanctity of US government debt will come into question. There are other countries that are less liquid but are experiencing better stability. As the global recession and financial crisis deepen, these alternatives will grow more and more appealing.
Characteristic of a primary fundamental theme, a shift in this market driver will not change over night - but will happen gradually. The calendar for the week ahead will help steer the bigger trend. Dollar traders have no doubt already priced in a recession; but how severe and lengthy of a contraction have they accounted for? A few growth-related indicators will test this. Pending home sales will gauge the ongoing housing market recession while the trade balance will reveal how effective a cheaper dollar is at drawing less international demand. The consumer will be the more important focus with retail sales for November accounting for the build up in spending trends into the holiday season while consumer sentiment will guide speculation for it going forward. Also thematic is inflation. Though factory and import-level price gauges are usually second tier readings, an expected plunge in annual readings would spell deflation which the Fed has little to no chance at fighting. This will be important considering the FOMC will decide rates on the following Tuesday. - JK

CURRENCY MARKET REPORT

Dated 4th Dec 2008, Madan Sharma,

Summary: - Mr. Obama’s selection of an economic team reflects in some ways what might be expected to come. Most in the team are strong dollar policy supporters. The team is very experienced and qualified to handle the recession at hand. Two situations happening in different times are never an exact repeat and the second time around more tools are always available for handling the crisis. In my opinion with the new initiatives proposed or being considered will comfortably stir the US economy back to a growth path, however the time frame cannot be guessed. Technically speaking I see no sign of a USD reversal for now. USD will remain strong for now. With new measures being proposed other then only fiscal measures, I am once again optimistic on the US economy.

Many parallels are being drawn between 1929 and now, and also between the recession in Japan in the 1990’s & now. However these are not identical situations and tools are available to handle the current recession
With the new measures proposed like to embark on an ambitious infrastructure and reconstruction plan is a very good sign and will considerably boost the economy.
Tomorrow being the first Friday of the month we have unemployment and Non Farm Payrolls data. First inflationary data of the month.

Today’s BOE meeting is expected to cut UK interest rates further. The ECB is also expected to bring interest rates lower. Hence the USD is likely to remain strong.
Gold: Gold is holding pretty well. It’s still around its highs of 2008. Gold remains bullish.
Oil: Will drop further and is likely to come down to 30 USD a barrel.
GBP: - Is the weakest among all currencies and is likely to drop to 1.4 and then to 1.3 against the USD. If some concrete measures are not announced to revive the economy we might even see the GBP going lower then 1.3
JPY: - remains strong but one need to be careful once it reaches 90 levels as it might bounce to around 95.
USD/PLN: Likely to go to 3.20/3.30 for now.

Yen rises on economic worries, ECB and BoE eyed

4 Dec 2008, 0706 hrs IST, REUTERS

TOKYO: The yen and the dollar rose against other major currencies on Thursday, recovering from losses made after a late rally in U.S. stocks the
previous day. Worries about a steeper global economic downturn remained strong after a slew of dismal data around the world, and kept demand intact for the low-yielding yen and the safe-haven greenback, traders said. The Euro and the British pound stayed vulnerable before interest rate decisions by the central banks in the euro zone and Britain later in the day. Expectations are high that they will ease monetary policy aggressively to boost deteriorating economies and counter the threat of deflation. "Having seen weak economic numbers coming one after another, it's difficult for market sentiment to improve dramatically," a senior trader at a major Japanese bank said. Japanese capital spending fell in the third quarter from a year earlier, pointing to a downward revision in the country's third-quarter growth numbers due next week. The euro was down 0.2 percent from late New York trade at $1.2690. The European Central Bank is seeing cutting rates on Thursday by at least 50 basis points to 2.75 percent, but many economists are expecting a 75 basis point cut. Sterling edged down 0.1 percent to $1.4770, having pared some losses made after data showing that Britain's service sector shrank faster than expected in November. The news boosted expectations that the Bank of England may slash rates by at least a full percentage point from 3.0 percent later in the day to shore up the domestic economy. Traders said the euro and the pound could fall after expected large interest rate cuts due to their diminishing higher-yielding appeal. But they may rebound quickly soon after because investors now reward currencies of countries that have been acting proactively to save the economy from a deep recession, traders said. The dollar edged down 0.1 percent to 93.17 yen, above a five-week low of 92.53 yen hit the previous session. The New Zealand dollar was steady after the country's central bank cut interest rates by a record 150 basis points to 5.0 percent, as expected. The kiwi was nearly flat at $0.5328, having trimming losses made after the rate decision.

US Dollar Bound to See Weak ISM, NFP Results - What Impact Will They Have?

Written by Terri Belkas, Currency Strategist

The US dollar generally ended the week lower across the majors, but lacked the momentum to yield the breakouts expected amidst the low volume trading typical of US market holidays.

Fundamental Outlook for US Dollar: Bearish
The US dollar generally ended the week lower across the majors, but lacked the momentum to yield the breakouts expected amidst the low volume trading typical of US market holidays. On Friday during the European trading session, the greenback jumped but lackluster price action during the US session left the major currency pairs within well-defined ranges. In fact, EUR/USD has held firmly between 1.2425 and 1.3075 since late October, GBP/USD has not been able to break above 1.55 since falling below on November 11, and the USD/JPY remains below falling trendline resistance that has held since mid-October.
Looking ahead to this week, event risk will pick up quite a bit for the greenback. On Monday, ISM Manufacturing is forecasted to slip to a fresh 16-year low of 37.5 from 38.9, and would also mark the fourth straight month that the index held below 50, signaling a contraction in business activity. Manufacturers are facing increasingly rocky times in light of slowdowns in the US and abroad, which is impacting both domestic and foreign demand. On Wednesday, ISM Non-Manufacturing is forecasted to drop to a new record low of 42.0 from 44.4, which will only add to speculation that Q4 GDP will be just as disappointing as the Q3 results, if not more. Last, but not least, US non-farm payrolls on Friday are sure to garner significant attention from the media and traders alike as they are forecasted to fall negative for the 11th straight month and by the most since September 2001. Furthermore, the unemployment rate is anticipated to rise to 6.8 percent - the highest since August 1993 - from already lofty levels of 6.5 percent.
It is rather obvious that the markets are expecting a round of pretty disappointing releases, but the big question is: how will the US dollar respond? Last week, the US dollar generally responded to fundamentals reports by falling when data suggested the Federal Reserve would cut rates further. This differs from previous weeks when the greenback responded solely to risk trends, as the currency would rise during times of risk aversion and stock market declines and vice versa. As a result, gauging the impact of risk sentiment on the forex markets will be important at the start of next week since it may determine whether the US dollar will break higher or fall for a deeper retracement. – TB

US Dollar May Finally See Breakouts During Volatile, Holiday Week

Written by John Kicklighter, Currency Strategist

Saturday, 22 November 2008 03:21:43 GMT

The US dollar is at a crossroads this week. On the one hand, congestion has been the rule of thumb for much of the currency market. On the other, fundamentals and underlying volatility suggest stability is waning. With a concentrated shot of event risk, growing threats to the credit and financial markets, and the unusual trading conditions expected to come along with the holiday, the chances for a breakout are intensified.

The US dollar is at a crossroads this week. On the one hand, congestion has been the rule of thumb for much of the currency market. On the other, fundamentals and underlying volatility suggest stability is waning. With a concentrated shot of event risk, growing threats to the credit and financial markets, and the unusual trading conditions expected to come along with the holiday, the chances for a breakout are intensified. First and foremost, it is important to consider what influence the US market holiday (Thanksgiving) will have on price action. One thing is for certain, liquidity will thin out as US banks and exchanges will be close on Thursday, and speculative interest from the country will be depressed through the entire week. Beyond this fact, we can have one of two reactions from the FX market. Either the drop in volume will maintain trends of congestion or its will leverage already extraordinary levels of volatility and potential incite breakouts.
Whichever outcome the market is destined for will likely depend on the influence of broad risk sentiment trends have over FX. We saw a temporary jump in risk aversion this past week, brought on by another series of indicators and reports that suggests the financial crisis could easily take a nasty turn for the worst in the very near futures. In fact, bond default risk hit a new record high, the benchmark Dow 30 tumbled to a new six-and-a-half year low and the dollar and Japanese yen found their way to new highs. And, while some of these moves have since retraced, the symbolic push has already been made. Looking ahead, the most immediate concern regarding the health of the markets is that the three major US auto manufacturers are on the brink of collapse. While we have already seen a few financial institutions go bankrupt, the failure of these American staples would signal the credit crisis has indeed made the jump from Wall Street to Main Street; and further that the second round effects of the crunch will be far more pervasive. Considering officials seem to already be reaching the limitations of the current TARP program (in addition to monetary policy and providing liquidity), a new intensity could spell disaster.
Aside from the constant ebb and flow of risk sentiment, the dollar may also take its cues from the economic calendar. While much of the data scheduled would be considered second tier at this point; the intensified scrutiny over the severity of the oncoming recession will refocus fundamental traders’ interests. The foreshortened trading week concentrates all the data into three days. The greatest threat of event risk lies with the first revision to third quarter GDP. While this is a second reading, there is the probability for a significant change to the headline gauge and component figures. Personal consumption will be particularly important as the failure of this vital sector could extend and intensify the economy’s slump. Further gauging the health of the consumer, personal income, spending and confidence readings will refine expectations of whether they will help or hinder the much-anticipated recovery. - JK
Visit our recently updated EUR/USD Currency Room for more resources dedicated to the US Dollar.

Asian stocks sink as layoffs add to global gloom

Asian stocks sink as layoffs add to global gloom
18 Nov 2008, 1835 hrs IST, AP

HONG KONG: Asian stock markets sank on Tuesday after Wall Street retreated and global financial firms announced another round of massive layoffs,
adding to gloom about the world economy. European markets traded lower. Tokyo's Nikkei 225 stock average fell 194.17 points or 2.3% to 8,328.41, a day after confirmation Japan, the world's second largest economy, had slipped into a recession.

Hong Kong's Hang Seng Index shed 4.5% to 13,131.23. Investors were discomforted by news the financial sector, still struggling more than a year after the subprime crisis erupted in the US and spread to Europe, continues to hemorrhage thousands of jobs. Citigroup Inc. announced overnight nearly 53,000 layoffs in the coming quarters amid massive losses from deteriorating debt tied to bad mortgages. HSBC Holdings PLC, Europe's largest bank by market value, said it plans to cut 500 jobs in Asia due to the global economic slump. "The entire world seems to be sinking into recession," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. Everyday there are corporate layoffs and economic bad news. Slowly but surely they are losing hope in markets." The Shanghai Composite index slid 6.3 per cent after advancing four straight days. Australia's main index declined 3.6 per cent and South Korea's Kospi fell 3.9 per cent. Benchmarks in Britain, Germany and France were lower in early trading.

US Producer Prices Fall by Most on Record, US Dollar Slips at Open

Tuesday, 18 November 2008 12:42:22 GMT

Written by Terri Belkas, Currency Strategist

The US dollar initially slipped on the release of the US Producer Price Index this morning, but how the greenback reacts throughout the day should be interesting as this report tells two different stories about the inflation picture in the US.
The headline reading plummeted by the most on record during the month of October, which helped to drag the annual rate to a one-year low of 5.2 percent from 8.7 percent. The bulk of the declines were in crude goods, as the energy component tumbled 24.9 percent while foods slumped 11.1 percent. This is similar to the US import price readings we saw late last week. However, the Federal Reserve may find it somewhat disconcerting that the Producer Price Index excluding food and energy actually rose 0.4 percent during the month and pushed the annual rate to a nearly 20 year high of 4.4 percent from 4.0 percent. While the Fed is likely to keep its focus trained on the downside risks to growth, this rise in costs for less volatile goods at the factory gate may make the central bank nervous. Following the release, US stock market futures have started to turn down a bit, suggesting risk aversion may not be quick to fade.

G20 Speeches Fail To Convince Asian Investors

G20 Speeches Fail To Convince Asian Investors
Forbes.com staff, 11.17.08, 11:59 AM EST

Markets in Hong Kong and South Korea give up gains; Japan manages to hang on to its pared gain, while Australia loses heavily on weak resources.

The G20 countries offered more platitudes than plans at a weekend summit, leading to choppy trading and not much conviction across Asia. Stocks recovered opening losses and then pared or canceled out morning gains, as some investors interpreted data out of Japan and Hong Kong indicative of recession as reason to withdraw, while others picked for bargains among blue chips.
In a turnaround from last week's dismal performance, Japan's Nikkei 225 rose by 0.7% Monday, to 8,522.58 points, and the broader Topix expanded by 0.4%, to 850.49, after the G20, a grouping bringing together developed and major emerging market nations, called Saturday for more progress in global trade talks by the end of 2008 and further stimulus measures and rate cuts by individual governments. They also set a deadline for more concrete proposals by their second summit, in April. Investors looked past data showing that Japan unexpectedly slipped into a recession in the third quarter. The economy shrank by 0.4%, whereas analysts had expected a marginal expansion.

Why did the USD become so strong so fast?

30th October 2008

US Dollar

In my previous reports I have mentioned time and again that I expect EURO/USD to reach 1.75 by December 2008. Then in July and onwards the rise of the USD was much stronger then I anticipated (though I correctly pointed out the strengthening of the USD before the Euros Fall in July), and hence I felt that 1.75 will not be achievable in December 2008, but rather in Jan or Feb 2009.

I feel the best approach would be if I provide scenarios:

Scenario 1: Euro falls to 1.1800 in November 2008.
Scenario 2: Euro falls to 1.2300 in November 2008.
Scenario 3: Euro does not come down to 1.2300 again but keeps drifting higher.

As of now Probabilities of the above scenarios is:
Scenario 1: 80%
Scenario 2: 20%
Scenario 3: 5%

The above probabilities have to be revised each week, as new data becomes available.

• One must make a distinction between the real economy and the paper economy or asset based economy. For example when you have a house which is worth 200,000 USD and then its value falls to 50,000 USD, You still have your house and that is real. The paper value has come down. The value could come down due to collapse of the property prices or due to loss of value of the currency in which the property is priced. In US the paper economy will collapse but real economy will continue though slowly.
• There are various assets in the world, stocks, mutual funds, property, bonds, T-Bills, gold, silver, Soft commodities and oil. The paper value of all these assets is coming down. Eventually investment grade assets will come down in value, like stocks, bonds, etc and will take long time (4-7 years) to go up. Real assets (particularly those that are life essential (like food and safe haven) will go up in value. Real assets include agricultural commodities and gold and silver.

Why did the USD become so strong so fast?

1. Money is being pulled out of emerging markets, because of which currencies of those emerging markets are getting weaker and USD is getting stronger. Example India.
2. There is a general flight to cash during market liquidations and the USD assumes status of safe haven currency. Gold, Oil, stocks, everything is being sold. This is called deleveraging of markets.
3. Cash hoarding – as businesses cant rollover credit and a general tendency now to hold money.
4. Year End is also approaching so closing of books is to be done.
5. Certain market manipulation can’t be ruled out. Of course Central Banks call it supporting the system.

Madan Sharma

USD/CHF – The CHF traded in a relatively tight range.
USD/CHF – 1.1768 – 1.1657 (Sell )

GBP/USD - had a rather wild session on Friday starting the Asian session around the 1.5620 level before dropping to a low of 1.5535 and then powering to an o/n high of 1.5880 during the NY session on the back of a worst than expected US jobs data before ending in NY below the 1.5700 handle.

On GBP/USD we can see some strong movement today as we are waiting for PPI (OCT) from UK. Down side move has two level 1.568 (70.0%) and 1.5576 (78.6%).
GBP has done his 70% retracemnet for his last up side move from 1.3682 (2001) to 2.1160 (2007), next level is 1.5282 (78.6%).

GBP/USD – 1.5576 – 1.6094 1st level, 2nd level is 1.6094 (Buy )

Euro Forecast Remains Dim on Euro Zone Recession Concerns

Euro forecasts against the US Dollar took a turn for the worse on the week, as generally dismal European economic data and further losses in the US Dow Jones Industrials Average led to similar Euro/US Dollar weakness. Official confirmation that the German economy entered a technical recession through the third quarter suggested that the broader Euro Zone finds itself in a similarly weak position—forcing further deterioration in euro fundamental forecasts. Whether or not the Euro may recover against the stubbornly resurgent US Dollar will largely depend on whether global financial market conditions will improve through upcoming trade. The Euro and US Dollar find themselves inextricably linked to broader developments in risky asset classes.

US Dollar Strength May Be Tempered By Near-Term Resistance

For weeks we’ve been discussing how risk appetite, or the lack of it, has been driving price action throughout the forex markets to the benefit of the lowest yielding major currencies: the US dollar and Japanese yen. The strength of the greenback has been all the more surprising given the dismal status of the US economy, but since the currency has managed to hold on to its status as a “safe haven” asset, fundamentals frankly do not matter at this juncture.

globeandmail.com: Leaders gird for battle over global financial crisis

'We want to change the rules of the game in the financial world,' French President Nicolas Sarkozy vowed as the Group of 20 industrialized and emerging economies began its two-day summit with dinner at the White House.
'There is a need for urgency,' added British Prime Minister Gordon Brown, who is calling for a 'college of supervisors' to oversee the world's 30 largest banks.
The summit was optimistically conceived as a latter-day Bretton Woods, the 1944 wartime gathering of dozens of countries that produced much of the architecture of the modern financial system.