IG Markets - Forex Focus September 29, 2010

IG Markets - Forex Focus

September 29, 2010

EUR/USD

Details

Prev close 1.3455 52 week high 1.5144
Last trade 1.3546 52 week low 1.1877
High 1.3553 Low 1.3381

Bloomberg Median Forecasts

Q1 2010 1.25 Q3 2010 1.30
Q2 2010 1.30 Q4 2010 1.28

Commentary

The greenback continued to struggle today and slipped—after a brief morning rally ran out of steam—as dollar selling continues to be the emerging trend this week. Meanwhile, the euro began its recovery after comments from ECB Executive Board member and well-known fiscal hawk, Juergen Stark, that the ECB may not renew some of its support measures when they mature at year’s end, prompting a near direct rise in euro demand. The dollar's descent was further pushed by reported comments from a former Chinese central bank adviser who posited that a devaluation of the US currency may be inevitable, given his view that present level of debt ratios are untenable over the long run. Many expect the greenback's downtrend to continue, given that any future quantitative easing moves by the US Federal Reserve, even in the modest form that was hinted at during last week's meeting statement, would probably still be more aggressive than moves by any other major central banks. "The China comments gave euro/dollar its biggest impetus (today) as it made people think perhaps there would be a reserve shift out of dollars," said Adrian Schmidt, currency strategist at Lloyds. [1] Paolo Palazzi-Xirinachs, Chicago

USD/JPY

Bloomberg Median Forecasts
Q1 2010 88.00 Q3 2010 88.00
Q2 2010 88.00 Q4 2010 90.50

Commentary
The dollar fell today to its weakest point since September 15th, which back then prompted the BoJ to sell nearly ¥2 trillion for US dollars. Some traders expect more dollar selling by Japanese exporters before the end of Japan's fiscal first half on September 30. Analysts believe that a narrowing spread between US and Japanese two-year yields also kept downward pressure on the USD/JPY pair today, but anxiety that Tokyo may intervene if the yen gets up towards 82 per dollar helped check gains. "There seems to be political pressure on the BOJ to ease policy further, but that is unlikely to alleviate much of the upward pressure that we are seeing on the yen from commercial flows," said Ian Stannard, senior currency strategist at BNP Paribas. "So the downside risks for dollar/yen will remain and a further round of intervention will be required."[2] The Bank of Japan is divided about the need to ease monetary policy next week, which may mean it delays taking action despite government calls for central bank measures to support the stagnating economy. Paolo Palazzi-Xirinachs, Chicago

USD/CAD

Bloomberg Median Forecasts
Q1 2010 1.04 Q3 2010 1.04
Q2 2010 1.04 Q4 2010 1.04

Commentary
The Canadian dollar fell against its US counterpart today addled by weakening commodity prices and largely flat equity moves, and remaining in a narrow range as investors looked for some semblance of guidance from an increasingly mixed set of economic data. "It is some broad based US dollar strength and weaker equities playing a role in the movement (today). Technically, it also seems the market is pretty much range-bound but that range is starting to drift higher with now C$1.03 at the bottom," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "Since the start of the week we haven't had any significant development providing guidance for the market," he added. [3] Also, continuing to weigh on the currency was oil, a key Canadian export, as prices fell below $76 a barrel ahead of US reports expected to show growing fuel stockpiles. Gold and base metals prices were also weaker, further influencing the commodity-linked currency’s movements. The underlying theme pervading this pairing seems to be general uncertainty about the strength of the global recovery in 2011, including any future quantitative easing by the US Federal Reserve—even in a modest form—as well as concerns about eurozone banks and some of its member countries' debts. Paolo Palazzi-Xirinachs, Chicago

Notes: Sources: [1] Wall Street Journal (28 September 2010), [2] Bloomberg News (28 September 2010), [3] Reuters Canada (28 September 2010). Bloomberg Median Forecasts are produced by Bloomberg by taking the median level from rates forecast by a number of contributors. These contributors consist of leading banks and security firms.

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