Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Dollar in Retreat as Corporate Failure Risks Soar on U.S. Auto's Bailout

Currencies / US Dollar Dec 11, 2008 - 10:49 AM GMT

By: Ashraf_Laidi

Currencies Best Financial Markets Analysis ArticleIt may be premature to call the recent currency developments a paradigm shift, but it is worth shedding light on these changes as the news from Capitol Hill overlap with thin trading volumes. The current weakness of the US dollar is not only taking part against higher yielding counterparts such as the commodity currencies (which was usually assign of improved risk appetite), but also against the Japanese yen. Since the intensification of the market and economic weakness, the greenback would gain versus most major currencies with the exception of the yen during curtailed appetite, while losing ground versus its higher yielding counterparts and weighing on the yen at times of improved risk appetite.


But the last 4 trading days are witnessing a gradual retreat in the US dollar, which is extending across USDJPY as US equity indices exhibit more valiant attempts of securing a bottom. With potentially market-punishing economic reports mainly out of the way for the year, the main focus remains on Capitol Hills final package for US automakers. This is clearly highlighted in USDJPYs inability to join EURJPY, GBPY and other yen crosses higher as it was customarily the case over the past year. The notion of broadening dollar weakness is explicitly reflected in golds rally past the $825 mark, which is the first 5-day winning streak since September. We have long argued that in order for gold to mount a more credible rally (beyond $850), downside US risks must be a stand-alone phenomenon (not joined by negative news in Europe and Asia).

The daily revelations of US automakers struggling foundation (having to settle for half their original $34 billion request) and the implications for their potential failure is raising transforming the risks into a US-specific risk, hence, bullish for gold. We have seen this during the failure of Lehman and the near failure of AIG. The implications for a "Failed Detroit" are enormous for the US economy as the auto sector is the biggest buyer of US steel, aluminium and even plastics and rubber. The industry employs over 240K direct and 5 million indirect workers and provides healthcare for 2 million employees. The auto industrys overall contribution to GDP is about 4%, with 12 billion annual spent on research and development.

Consequently, the dollar weakness is manifested across the board, even against the struggling GBP. But going back to EURUSD, the currencys quiet comeback is no longer latent as the $1.30 is breached and en-route towards $1.330. A breach above will encounter the next obstacle at the7-month trend line resistance of $1.3450, which could prove considerable for this week. Nonetheless, with the event risk of Fridays US retail sales and next weeks CPI, the $1.37 high target for the year remains viable. The trend line support of $1.28 becomes a backup foundation for $1.29.

EURGBP did the inevitable and broke to 0.8897. Oscillators suggest a temporary retreat is in the works near 0.8940-50, which could take us down to 0.87 before a renewed recovery towards 0.9300.

EURJPY remains the least bullish of the major euro pairs as the yen imposes its will on reluctance to buy risk abundantly. The pairs contrasting developments with USDJPY bolsters the argument for higher gold. Technicals suggest further upside towards 123.80, followed by the 50-day moving average of 124.

USDCAD continues its downward course in line with the weeks CAD analysis as the combination of improved risk appetite and higher commodities removes obstacles from CAD bulls. The argument that this weeks bigger than expected 75-bp cut may not be succeeded by more easing for some time is also providing more long term solidity for the loonie. Todays break below $1.2520, marks the breach of a major 2-month trend line support (extending from the 1.0316 low), which could pave the way for 1.2230.

Ashraf's book "Currency Trading & Intermarket Analysis" is out in US and Canadian stores this week. Risk appetite across currency, equity and fixed income markets is discussed in detail in Chapter 5.

By Ashraf Laidi
CMC Markets NA
AshrafLaidi.com

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in