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Why has the Dollar Strengthened as the Stock Market Falls?
Reports of more subprime related losses have sent the markets tumbling once again. The stock market is down another 100 points, putting this week’s losses in the Dow close to 500 points. Carry trades and other high yielding currencies have followed suit as more victims of the subprime fallout surface. Domestically, Sowood Capital Management, a hedge fund founded by a former Harvard Management executive suffered bond losses in excess of 10%. A Citigroup analyst also released estimates of the potential losses at Fannie Mae and Freddie Mac, whose bond holdings are estimated to have dropped by $4.7 billion. Internationally, Australian hedge fund Absolute Capital group suspended withdrawals from two of its funds as a direct result of subprime contagion. The problems have now gone global which means that the age of easy money is over. Investors and lenders in general will be far more careful about who and what they are willing to fund. Even if the markets do rebound, sentiment has shifted so dramatically that we probably won’t see 14,000 in the Dow or fresh highs in carry trades again this year. The most common question that we are being asked right now is why is the dollar rallying? The answer is because now that the global liquidation has deepened, investors are steered back into the US dollar because of its safe haven status…

Source: Daily FX

SYDNEY (Thomson Financial) – The US dollar was lower against the yen and euro early in Asian trading hours Monday as currency markets remained focussed on developments in equity markets around the world.

Trading this week is expected to reflect whether the slide in share prices on Wall Street gathers momentum, which would likely reduce carry trades but generally support the greenback as investors switch to safer assets such as US Treasuries. At 9.53 am here (2353 GMT Sunday), the dollar was at 118.35 yen, down from 118.46 yen in late trading in New York Friday. The euro was at 1.3640 dollars, up from 1.3618 dollars in New York.

Friday’s rise in the US dollar rise was aided by data showing the US economy grew at an annual rate of 3.4 percent in the second quarter, the fastest rate in five quarters.

The Federal Reserve’s preferred measure of inflation, the core personal consumption expenditure price index, rose 1.4 percent in the second quarter, rising at its slowest pace since the second quarter of 2003.

NAB Capital said it doubted whether these data would change the mood in equity markets if credit spreads kept widening.

‘Solid US non-farm payrolls growth of 130,000 in July is expected Friday. However, [the] pending home sales for June, due Wednesday, risk exacerbating concerns over the housing slump,’ NAB Capital said.

Source: AFX News Limited

Friday, July 27, 2007 6:22:35 PM – The Japanese yen saw strength against the other majors on Friday in New York. The currency continued to rise against the euro and sterling and remained near a three-month high against the dollar. Trading took place as investors mulled data showing that Japanese core consumer prices fell as expected during June.

The yen was slightly up against the dollar on Friday and remained near a three-month high. The yen gained early in the morning and remained range-bound ahead of its overnight levels through the morning and afternoon. The currencies traded between 119.27 and 118.42 through the day. The pair traded at 118.76 at 6:15 p.m. ET. Traders considered data showing that the American GDP rose 3.4% during the second quarter.

The yen was up against the euro on Friday in New York. The Japanese currency rose throughout most of the morning, before cooling off. It fell back later in the morning but then climbed again in mid-day trading. The Japanese currency added further gains in the late afternoon and got as high as 161.52 at 5:15 p.m. ET. An hour later, the pair traded at 162.02. Trading took place amid the release of data showing that German consumer confidence was stable in July.

The yen continued to advance against the sterling on Friday in New York. The Japanese currency rose in the overnight hours and then added further gains at around 5 a.m. ET. It climbed again in the late morning and again in the afternoon. It got as high as 239.72 at 4:45 p.m. ET. It was at 240.36 about 90 minutes later.

Source: www.forex-markets.com

LONDON (Thomson Financial) – The dollar hit a two and a half month low against the yen on expectations of a disappointing opening on Wall Street amid ongoing concerns about the health of the US economy.

The Dow Jones index of leading shares is expected to open some 120 points lower. That is more than double the losses anticipated earlier.

‘There’s a lot of nervousness in equity markets and that increase in risk aversion has helped the Japanese yen in particular,’ said Neil Mackinnon, chief economist at ECU Group.

The main reason the yen enjoys support in these risk averse times is that Japanese investors look to repatriate funds. This has helped push the dollar down to a low today of 119.44, its lowest level since May 11.
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Let’s take a look at the three most popular types of forex charts:

Line chart
Bar chart
Candlestick chart

Line Charts
A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.

Here is an example of a line chart for EUR/USD:

Bar Charts
A bar chart also shows closing prices, while simultaneously showing opening prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. So, the vertical bar indicates the currency pair’s trading range as a whole. The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.

Here is an example of a bar chart for EUR/USD:

Bar charts are also called “OHLC” charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here’s an example of a price bar:

Open: The little horizontal line on the left is the opening price
High: The top of the vertical line defines the highest price of the time period
Low: The bottom of the vertical line defines the lowest price of the time period
Close: The little horizontal line on the right is the closing price

Candlestick Charts
Candlestick charts show the same information as a bar chart, but in a prettier, graphic format.

Candlestick bars still indicate the high-to-low range with a vertical line. However, in candlestick charting, the larger block in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the currency closed lower than it opened.

In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled.

The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on an OHLC bar chart. The advantages of candlestick charting are:

• Candlesticks are easy to interpret, and are a good place for a beginner to start figuring out chart analysis.
• Candlesticks are easy to use. Your eyes adapt almost immediately to the information in the bar notation.
• Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the pattern means.
• Candlesticks are good at identifying marketing turning points ¨C reversals from an uptrend to a downtrend or a downtrend to an uptrend. You will learn more about this later.

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The dollar edged higher against the euro on Monday, recovering from a record low as dealers awaited economic data later in the week to see if U.S. credit market turmoil has spread to other sectors. Short-term investors closed their bets against the Dollar after the euro failed to sustain gains beyond record highs 1.3847, allowing the dollar to stabilize near 12-year lows against a basket of major currencies. Analysts said “we’ve had an enormous rally in currencies against the Dollar and at some point in time people want to take some money off the table. But bearish sentiment on the dollar is still the strongest we’ve seen in some time, and any good dips in the euro are probably going to be seen as opportunities to buy again”.

Yesterday, EurUsd traded at 1.3796 down 0.2%, after hitting an all-time high earlier in the session of 1.3847. GbpUsd rose to a 26-year high above 2.0600, before paring those gains to trade only slightly up on the day at 2.0591 up 0.15%. UsdChf climbed 0.42% percent to 1.2060. UsdJpy slipped 0.2% to 120.96, having hit a six-week low around 120.80 yen earlier in the day. The New Zealand dollar surged above 0.80 against Dollar for the first time since the currency was floated in 1985, strengthening to a high of 0.8072 and gaining 1.07% on the day. The Reserve Bank of New Zealand is expected later this week to continue raising rates, which are already among the highest in industrialized countries.

The US currency is coming off five consecutive weeks of declines, mostly on fears of widespread fallout from the US sub-prime mortgage crisis. Analysts said “Reflecting the growth and interest rate divergence between the U.S. and the rest of the world, the dollar will likely continue to be treated as the sub-prime currency”.

There were no major economic data releases from the United States, UK or the euro zone on Monday, leaving FX investors to focus on equity, credit and bond markets for direction. U.S. existing home sales data for June are due on Wednesday and new home sales data comes on Thursday. The market will also get its first look at second-quarter U.S. Gross Domestic Product growth on Friday.

by Jean-Claude Braha
Advanced Currency Markets, Geneva, Switzerland

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While horror stories about high-yield bonds may be in the headlines these days, you should not get rid of these funds quite yet. The worries about hedge fund meltdowns and too many of them in existence as well as the history of tight spreads is not going to take down these high yield bonds. In fact, all of this attention has actually caused spreads to widen just enough for them to be able to give portfolio managers some “breathing room” so that they can earn them money in the second half. While this range is still tight it is a lot more comfortable than it has been Of course, other hedge funds are going to step up and announce similar problems. However, the crisis should not spill over into equities and they also should not severely damage high-yield bonds. Sellers are not going to be stirred by the rash of junk-bond funded leverage buyouts. In fact, the tidal wave of private-equity deals are merely “speed bumps” that will test people but if you are patient, you will come through this just fine.

TOKYO, July 17 (Reuters) – The dollar hung near a record low against the euro on Tuesday and hovered near its weakest level in more than 20 years versus sterling and the New Zealand dollar as concerns about problems in the U.S. subprime market kept the U.S. currency under selling pressure.

The yen also stayed weak as investors used the low-yielding currency to buy assets in currencies with higher yields on the view that the Bank of Japan will raise rates very slowly even as the market expects a lift to 0.75 percent next month.

“We’re seeing ongoing weakness in the dollar due to concerns about the subprime market,” said Hideaki Inoue, forex manager at Mitsubishi UFJ Trust and Banking, as Tokyo traders returned from a market holiday on Monday.

“The market wants to see exactly what impact the recent problems in the subprime market will have on the rest of the economy.”

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4. Stick to the strategy – When you make money on a well thought-out strategic trade, don’t go and lose half of it next time on a fancy; stick to your strategy and invest profits on the next trade that matches your long-term goals.

5. Trade today – Most successful day traders are highly focused on what’s happening in the short-term, not what may happen over the next month. If you’re trading with 40 to 60-point stops focus on what’s happening today as the market will probably move too quickly to consider the long-term future. However, the long-term trends are not unimportant; they will not always help you though if you’re trading intraday.

6. The clues are in the details – The bottom line on your account balance doesn’t tell the whole story. Consider individual trade details; analyse your losses and the telling losing streaks. Generally, traders that make money without suffering significant daily losses have the best chance of sustaining positive performance in the long term.

7. Simulated Results – Be very careful and wary about infamous “black box” systems. These so-called trading signal systems do not often explain exactly how the trade signals they generate are produced. Typically, these systems only show their track record of extraordinary results – historical results. Successfully predicting future trade scenarios is altogether more complex. The high-speed algorithmic capabilities of these systems provide significant retrospective trading systems, not ones which will help you trade effectively in the future.

12 July 2007

Almost an hour into today’s special dollar trading session for tomorrow deals, the high and low on deals stood at 25.53 RUR/USD and 25.52 RUR/USD. Therefore, the spread on dollar deals has been narrow at RUR0.01. Meanwhile, commercial bank activity has been slack. As of 10:30 a.m., the trade volume was around USD77m.

Source: www.rbcnews.com

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