August is called the month of Oil Price fluctuation

Thursday, August 28, 2008

I believe that market focus for the near future will be on the sterling and oil prices – two key elements in keeping the dollar stable. Oil prices fell the steepest fall in 4 years on last Friday to below $115, thus increasing the dollar's gains. The rise in oil prices is the U.S.-Russia conflict, as Russia is the second largest oil producer in the world. Canada is also one of the world's largest oil producers, providing the U.S. with the largest supply of oil.

Very recently the rise in gold and oil prices has brought the dollar's rally to a halt. On the other hand, the rise of oil to above $116 a barrel was not as helpful to the euro and the sterling as expected, reflecting the bearish sentiment towards these currencies.

On 13th August 2008, the Oil prices were down yet again by 1.3 % to $113.17 a barrel – a total $30 drop since July's record. The steep fall from $147 to below $115, was due to its status of a major exporter of oil.

On the contrary on 11h august, this price eventually settled at $116.50 a barrel. I believe on that day that the rise of the euro had hit a wall, and its fall is not only contributed to the pressures from soaring oil prices. The euro has lost momentum, affected by dollar buying as well as the tight monetary policy, making investors believe that a European cut in interest rates will occur sooner than later.

Thus august month has seen major changes in the prices of oil and its impact on world currencies.


GBP/USD – 2 year high for the dollar in sight of Britain's frail economy

Tuesday, August 26, 2008

Data on the UK's gross domestic product has revealed no changes in the second quarter at 0.2% quarterly growth, its lowest in 16 years. This rose investors' expectations that the Bank of England would cut interest rates. This as well as weak data from the European region gave support to the dollar.

Despite the weakening of global economies and the resulting boost of the dollar, traders remained skeptic about the continued rise of the dollar due to the frail U.S. financial system. Traders will be closely monitoring U.S. housing data to be released this week, as well as new developments about the future of Lehman Brothers investment bank and mortgage giants Fannie Mae and Freddie Mac.

I believe that market focus for the near future will be on the sterling and oil prices – two key elements in keeping the dollar stable. Oil prices fell the steepest fall in 4 years on Friday to below $115, thus increasing the dollar's gains. Moreover, Investors will act carefully at this week's housing data, which might limit the dollar's gains, yet they have no reason to sell the dollar for now.

The sterling fell to $1.8415, its lowest rate since 2006. This slide brought about unexpected short positions in the sterling, perhaps making it possible for the currency to recover.

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EUR/USD – Dollar's 8-month high continues to slip away

Thursday, August 21, 2008

Yesterday, the dollar lost its 8-month peak against major currencies as investors continued to sell their positions in order to profit from the dollars latest rally. In addition, many of the investors like me are not taking any risks with the dollar in sight of the indebted mortgage giants Fannie Mae and Freddie Mac's apparent need for governmental assistance.

A combination of these factors as well as the recent rise in gold and oil prices has brought the dollar's rally to a halt. On the other hand, the rise of oil to above $116 a barrel was not as helpful to the euro and the sterling as expected, reflecting the bearish sentiment towards these currencies.

Nevertheless, the losses in the dollar were minimal in sight of a slowed growth around the world which might prompt cuts in interest rates in the world's largest economies besides the U.S.
Traders are expecting key European data later in the day in order to estimate the state of economic health of this region.

According to the Finexo currency trading room euro dropped 0.2% and stabilized at $1.4776, remaining above the 6-month low of $1.4630 hit on Tuesday. This adds up to a total of 8% fall from its July record peak of $1.6040.

EUR/USD recovers further today but still fails to take out 1.4830 resistance. Outlook remains neutral for the moment. On the upside, break of 1.4830 will confirm that a short term bottom is in place and bring stronger rebound, probably to test 1.5284 double top neckline resistance before staging another fall. On the downside, below 1.4672 minor support will flip intraday bias back to the downside and break of 1.4629 will indicate that recent decline from 1.6038 has resumed for next target of key medium term support at 1.4309.


Britain economy facing crisis

Monday, August 18, 2008

Concerns about the economy of the UK weakened sentiment, thus hurting the sterling which dropped to a 21-month low on Monday. According to a recent survey, businessmen and factory owners do not expect the growth of their businesses in the near future due to the poor state of the economy. More than a third of business owners believe that they will have no choice but to cut jobs and bonuses.

Despite July's manufacturers' costs falling more than expected, the numbers were still higher than last year's, providing some support to the pound. This also sparkled expectations of an interest rate cut from the Bank of England, meant to boost economy growth. I think now that the economy is in such a bad shape, any encouraging news matters and will surely make some difference.

Actually what i believe is that the expectations of a cut in interest rates usually damage the currency by lowering its yield advantage, yet in the case of the UK economy in which growth has slowed so significantly, these prospects easing the UK's borrowing costs, could actually become an advantage.

Until the present, the BoE has been stuck between a rock and a hard place, with growing inflation on the one hand, and the limited ability to cut interest rates in the face of no growth, on the other. The Financial Services Authority of Britain has issued a statement that the industry should prepare itself for a possible crisis; similar to the one Britain went through during the 1990s recession.

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Dollar Loses its 7-Month High and high volatility seen.

Saturday, August 9, 2008

According to the news update I read today at FINEXO the dollar lost ground against the yen, thus retreating from its 7-month high achieved due to the fall of oil prices to a 3-month low. Many of the traders preferred to sell on the profits of the previous day, in which the oil's drop beneath $120 a barrel supported stock gains and investors are willing to take more risks after yesterday's new found support in the dollar.

When investors are willing to take more risks, this usually means the renewed investment in low yielding currencies like the yen in order to profit from higher interest rates somewhere else, also known as carry trading. Despite this short-lived profit-taking, analysts believe that the dollar will continue its rise.
My growing concern is about the Japanese economy, which might increase dollar buying. The yen is under pressure due to a series of data suggesting that Japan's postwar economic growth might be coming to an end. This supports views that the Bank of Japan would probably leave interest rates unchanged at 0.5% in the near future.
Market players are closely monitoring the yen to see if it can break above the 109.95 yen resistance, the highest in almost 6 years. The dollar eventually stabilized at 109.40 after a drop of 0.4 percent. The previous day's 7-month peak was of 109.89.

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NZD/USD – Kiwi at a 10-Month Low due to an Apparent Recession and Rates' Drop

Friday, August 1, 2008

The New Zealand dollar reached its 10-month low on Thursday, due to growing concerns about an extended period of recession and a rapid fall of interest rates. I think this is due to the combination between the pessimistic comments made by Alan Bollard, the Governor of the Reserve Bank of Australia, as well as further negative data will contribute to the kiwi's weakness.

Next week's employment data and labor costs are expected to drag the New Zealand currency even lower. The monthly business outlook released by the National Bank of New Zealand reflects the companies' pessimism regarding the conditions of their trade for the fifth month in a row this July. This is the lowest consecutive negative reading in 20 years. According to senior economists, this is not only negative data, but it reflects the recessive state of the country.

New Zealand's Central Bank is expected to further cut interest rates in a meeting on September 11, by a quarter point to 7.75%, this is after they were already cut for the first time in five years last week. Analysts believe that if next week's wage and jobs figures point to a further easing the labor market, the market may start factoring in the risk of a 50 basis point cut.

As I have previously mentioned, The New Zealand currency dropped to $0.7316 its lowest reading since September on Wednesday due to a statement made by Alan Bollard about the various interest cuts ahead, due to the weakening of the economy and inflation pressures. It strengthened on Thursday and was set at $0.7356, yet analysts say that a further weakening of the economy may prove that this change is only short-lived.

The Kiwi stabilized at $0.7329 in comparison to Wednesday's $0.7345.


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