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http://quotes.ino.com/chart/?s=NYBOT_DX&v=iLast trade 77.884 Change +0.543 (+0.70%)Post G7 - Where Do We Go From Here?http://www.dailyfx.com/story/topheadline/G7___Where_Do_We_1193028854191.htmlThe G7 meeting ended not with bang but whimper as members made no overt references to the dollar, the euro, or the yen only singling out the Chinese yuan as the currency most in need of adjustment. The focus on the yuan created a knee jerk selling reaction in the USDJPY on the open of trading in Australia with the pair gapping 50 points to slip below the 114.00 figure. However, it remains to be seen if the yen will continue to rise as carry traders may find the new lower levels of the yen crosses too tempting to pass up.
Although the yen typically strengthens by an average of 500 points after G-7 meetings, much of the fall in USDJPY occurred pre-meeting as traders positioned themselves for a more hawkish communique.The pair is already down more than 1000 points from its 2007 highs and now stands only 250 points away from the spike lows set during the August credit crunch. Given the lack of pressure on the Japanese officials to speed up the normalization of interest policy, yen's strength going forward will have to rely primarily on risk aversion. To that end the Nikkei and later the Dow could be the dominant forces in currency trading today. With DJIA down more than 300 points on Friday, FX traders will anxiously await Monday's open. If stocks don't find a bottom USDJPY is unlikely to find one too.
For the greenback itself, the situation looks rather gloomy as the week begins. The absence of any clear indication of support from the G-7 suggests that monetary officials will not intervene either verbally or physically to stem the dollar's decline. This leaves the greenback at the mercy of the speculators who will likely push it even lower especially if they become convinced that the Fed will be forced to lower rates another 25bp in October. With Fed funds futures handicapping a 92% probability of a cut the greenback looks vulnerable as 1.4400 in EURUSD 1.4400 and 2.0600 in GBPUSD may be put to the test in the next few days.
...more...US Dollar: 90% Chance for October Rate Cut!http://www.dailyfx.com/story/bio1/US_Dollar__90__Chance_for_1192826929258.htmlThe price action in the financial markets this week is a testament to how quickly expectations and sentiment can change. We started the week with nearly everyone in the market agreeing that the Federal Reserve will not cut interest rates at the end of the month and now implied Fed Fund futures are pricing in a 90 percent chance of an October cut. Taking a step back, aside from US consumer prices, the data released this week the US was mostly second tier, which means that they should not have been all that market moving. So what caused the dramatic change in interest rate expectations? Continued weakness in the housing market, disappointing earnings in the banking sector and a 550 point drop in the Dow (Monday to Friday). With HSBC downgraded, Bank of America reporting a 32 percent decline in earnings and Wachovia reporting a 10 percent drop, the 20th Anniversary Week of Black Monday 1987 has proven to be as brutal on a point basis as many of the October crashes that we have seen in the past. The rise in oil prices creates additional risk for an already vulnerable US economy and calls for a recession are returning. More immediately however, we need to turn our focus to today’s G7 meeting. The communiqué should be released this evening. According to Dow Jones, the draft of the statement indicates that finance ministers will be calling for the Chinese Yuan to increase more quickly in value. The Euro, US dollar, Japanese Yen and the Dow will probably not be mentioned in the official statement. The biggest currency to be impacted will therefore be the Japanese Yen. Next week, we have more housing market data from the US as well as durable goods due for release. The market’s primary focus will be on the following Wednesday’s October 31st FOMC meeting but don’t write off the potential for a continuation move in the equity and currency market if there are any additional surprises in the official G7 communiqué.
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