The dollar drops to fresh all time lows against the euro at $1.3880 while hitting fresh multi-week lows against sterling, Aussie, Kiwi, loonie and the Swissie. The lack of potentially market destabilizing data and the cemented notion of a weakening U.S. economy are weighing on the dollar across the board, permitting traders to put on risk appetite plays into the rest of the week. But the yen is also firming against the U.S. currency after the resignation announcement from Japan’s PM Abe, whose unpopularity extended into his ability to affect legislation in Congress. Markets cheered the announcement as it portends a change from a deteriorating leadership. The broadening dollar decline continues to shore up gold prices above $710 per ounce, making the $730 level a viable target by next week’s FOMC meeting. Risk appetite is then expected to fade out gradually as we approach next week’s FOMC decision, with the possibility for market disappointment from the Fed greater than that of a positive reaction to the announcement.
Euro at record high of $1.3880, $1.3920 eyed EUR/USD rallies for the sixth consecutive as the lack of appetite disrupting reports allows for further dollar selling against the euro whose central bank maintains its hawkish rhetoric. The increased notion that the credit market turmoil will have broader economic repercussions on the U.S. economy than on the Euro zone makes the interest and growth differential arguments against the U.S. dollar all the more compelling. EUR/USD is expected to test the $1.39 figure and onto $1.3920. Key resistance stands at 1.3940. Support climbs to 1.3820, backed by 1.3780.
Yen cheers Abe’s resignation After a short-lived sell-off following reports of PM Abe’s resignation, the yen stabilized across the board before firming ahead, dragging the dollar and the euro below the 114 and 158 levels. Abe’s resignation was on the grounds that the country needed a leader to fight terrorism after he failed to garner support from opposition parties to add Japanese troops to the US-led mission in Afghanistan. But Abe’s popularity had remained on the decline ever since his appointment a year ago, plagued by financial scandals, and resignations in his cabinet. A new leader will be appointed next week.
This temporary return of market confidence with respect of heightened certainty of a Fed rate cut next will serve to stabilize the pair at the 113.60 support, before a rebound towards the 114 figure. Subsequent support stands at 113.30. Prolonged equity rallies in the United States will likely lift the pair towards the 114.30 cap.
Cable firms as does BoE stance Bank of England governor Mervyn King once again steals the headline by expressing the central bank’s reluctance to inject liquidity, which he deems a reward to speculators. Despite a reports showing UK pay growth slowing to 3.4% in the three months ending in July from 3.5%, sterling’s rally rests largely on the damaged greenback. Rally is now fading out, eyeing interim support at 2.0270 and 2.0220. Upside capped at 2.0320.
CAD at six-week highs, eyes 1.0380 Oil prices remain above $78 per barrel despite yesterday’s OPEC supply hike of 500,000 barrels. A report from the International Energy Agency estimating that the market turbulence is unlikely to lead to a significant decline in oil demand. The falling dollar is another reason for OPEC’s reluctance to follow with further output increases. Yesterday’s decision is expected to slow the pace of oil’s increase than push it lower.
Rising oil prices and accumulating risk appetite are boosting the loonie, calling the 1.04 support, followed by 1.0370. Upside capped at 1.0430 and 1.0470.
Ashraf Laidi Chief FX Analyst CMC Markets US a.laidi@cmcmarkets.com
