G7 warns market on YEN volatility

U.S. Dollar Trading (USD)

U.S. Dollar Trading (USD) continued to make strong gains as equity markets continued to be under pressure and safe haven flows supported the USD. US stocks recovered but fell steeply into the close. US data was better than expected with New Home Sales rising 2.7% to 464K. In the U.S. share markets, the NASDAQ was down 46 points (2.97%) and the Dow Jones was down 200 points (-2.42%). Crude Oil closed down $0.93 ending the New York session at $63.22 per barrel. Looking ahead, October Consumer Confidence is seen at 52 vs. 59.8 previously.

European Euro

The Euro (EUR) after starting the day bouncing the Euro turned south again with Asian stocks and kept on falling before putting in New Year lows. October German IFO fell to 90.2 vs. 91 forecast. The Euro was able to recover and close above the key 1.2500 level. Overall the EUR/USD traded with a low of 1.2336 and a high of 1.2624 before closing the day at 1.2520 in the New York session. Looking ahead, GFK Index expected at 1.5 in September.

Japanese Yen (JPY)

The Japanese Yen (JPY) Bounce off highs as the G7 issued a statement warning against extreme volatility in the Yen and that coordinated action is ready to be taken. The market pared some of its USD/JPY shorts on the news but as the Nikkei piled on losses the market sent the Yen soaring higher especially against the GBP. Overall the USDJPY traded with a low of 91.91 and a high of 94.23 before closing the day around 93.80 in the New York session. UPDATE SEPTEMBER RETAIL SALES -0.4%

Pound Sterling (GBP)

The Sterling (GBP) had another volatile day falling from Fridays close and retesting lows on slumping stocks around the world. As markets recovered the GBP bounced towards 1.57 before settling at 1.56. EUR/GBP found resistance at 0.8125. Overall the GDP/USD traded with a low of 1.5280 and a high of 1.5877 before closing the day at 1.5645 in the New York session. Looking ahead, October CBI sales are seen -35 vs. -27 previously.

Australian Dollar (AUD)

The Australian Dollar (AUD) was relatively buoyant in the morning bouncing off lows until the Nikkei broke lower in the afternoon causing a spike in Risk aversion and undermining any recovery seen in the Aussie. Extreme weakness at the end of the US session brought 0.6000 downside target back into the frame and required the RBA to intervene for the 3rd time in 3 days adding liquidity and stabilizing for the time being. Overall the AUD/USD traded with a low of 0.6010 and a high of 0.6245 before closing the US session at 0.6080.

Gold

Gold (XAU) tracked Oil and USD strength initially falling back towards $700. The Bounce in US stocks saw a significant reversal and Gold traced the recovery up to resistance at $750. Overall trading with a low of USD$707 and high of USD$747 before ending the New York session at USD$731 an ounce.

Technical Analysis: G7 Warns Market

Euro (EUR)

Euro – 1.2460 : Initial support at 1.2335 (Oct 24 low) followed by 1.2286 (April 19 2006 low). Initial resistance is now located at 1.2686 (Oct 22 high) at followed by 1.3078 (Oct 21 high).

Yen (JPY)

Yen – 92.75 : Initial support is located at 91.93 (Oct 27 low) followed by 90.92 (Oct 24 level). Initial resistance is now at 94.48 (Oct 27 high) followed by 97.98 (Oct 24 high).

Pound Sterling (GBP)

Pound – 1.5535 : Initial support at 1.5267 (Oct 24 low) followed by 1.5164 (Aug 2002 low). Initial resistance is now at 1.5923 (Oct 27 high) followed by 1.6346 (Oct 24 high).

Australian Dollar (AUD)

Australian Dollar – 0.6015 : Initial support at 0.5929 (Apr 07 2003 low) followed by the 0.5882 (Mar 18 2003 low). Initial resistance is now at 0.6026 (Oct 27 low) followed by 0.625 (Oct 27 high).

Gold (XAU)

Gold – 729 : Initial support at 707.5 (Oct 27 low) followed by 682.5 (Oct 24 low). Initial resistance is now at 747 (Oct 24 high) followed by 750 (Key Level).

The Canadian Dollar is the currency of Canada. In foreign exchange trade, it is also termed as "The Loonie". It is issued by the Bank of Canada which is also responsible for making economic and financial policies for the nation. Many central banks around the world keep Canadian Dollars as the reserve currency.

A major decline was observed in Canadian Dollar against US Dollar during the technological boom of the 1990s that was focused on United States. From that time on, it has made a strong place for itself in the international foreign exchange trading markets.

It has risen against all the major currencies, primarily because of the high prices of commodities, which are exported by Canada. Canada also holds one of the major crude oil reserves on the globe. The main costumer of Canada is United States of America. Thus if the oil prices increase, the Canadian Dollar is also strengthened.

In 2007, the Canadian Dollar rose sharply against the US Dollar because of the constant muscle of the Canadian economy and the weakness of the US currency on the world foreign exchange markets. Since most of the export and import businesses of Canada are linked with United States, so the main interest of the Canadians in the value of its currency against US Dollars is understandable.

Although the Canadian Dollar tends to move along US Dollar in the international markets, yet Canadian Dollar is considered to be more stable than its US counterpart. The swift growth in the value of the Canadian Dollar lifts the price of Canadian exports to the United States, which make up a large part of the economy. With the increase in the Canadian Dollar, it becomes easier for the Canadian industries to buy foreign material and businesses.

Asia’s worst currency, the Vietnamese dong, will continue to drop as inflation rises. This is the largest drop in the last 10 years say the experts at HSBC. The dong has gone down by .7% this year, and that has voided any of last years gain. Another slow down to this, the world’s worst currency, are high food and oil prices. The increase in these commodities may cause the nations deficit to rise and slow any earnings made by corporate growth.

A foreign exchange strategy expert at HSBC, in Hong Kong, Richard Yetsenga said "We see some near term weakness, and the key concerns are that inflation and excessive domestic growth have been allowed to persist. These economic pressures have caused the dong to go from positive to negative"

Other financial institutions in agreement with HSBC are ABN Amro Bank NV, and Morgan Stanley. Amro says the dong will go lower, and published a report to that effect last week, and Morgan Stanley, who earlier in the year predicted a 4% gain, says that their prediction "may have been too optimistic."

To make matters worse, Goldman Sachs Group Inc. reported that the State Bank of Vietnam purchased a large amount of dollars in March, which again caused the dong to go down by about 1.8%. The purchase was intended to make the nations exports more sought after.

As of yesterday, the dong was at 16,110.5 and may go down another 0.7% by the middle of the year, reaching as low as 16,217 and end the year out not much higher than 16,135, according to HSBC expert Yetsenga.

Economic Growth has also Slowed

Due to slowing global economy, the economic growth slowed during the first quarter to 7.4%. Due to this information and the nation’s inflation rate, Vietnam has stated that it intends on reducing the targeted growth rate to 7% this year.

The depreciation of the dong is caused by several factors, according to the financial experts, and those factors vary, but what is known is that the dong has changed very little since April, when the central bank informed the financial world that it would expand the dongs daily trading band to 2% on either side of a daily fixed rate. The purpose of doing this was to slow the 19.4% inflation rate, but the government did not mention when the State Bank of Vietnam would widen this band.

The Philippine Peso has risen to an 8 year high against the US Dollar in an early trade on Thursday, reflecting the weakness of the US Dollar. concerns. The Bangko Sentral ng Pilipinas (Central Bank of the Philippines) has yet to intervene in the market since Tuesday when it established a 'feeble dollar-buying defense', according to traders at Metropolitan Bank & Trust Co. The rising Philippine Peso alongside other South East Asian currencies have been benefited by the slowing US economy. The Philippine Peso was the strongest Asian currency in the year 2007, but is currently lagging in 2008.

''The market is continuing its consolidation phase. There are bouts of bargain hunting but it is still not as strong as it could have been compared to the other markets that have rallied recently,''said Jose Vistan, research director at AB Capital Securities.

The Philippine Peso's rise comes a day before protesters against President Gloria Macapagal Arroyo stage another street protest to demand her resignation. The Pangulo of the Philippines has again been subject to political controversy where she and and ally have been implicated.

In forex trading, the Philippine Peso has risen to an 8 year high against the US Dollar. The rising Philippine Peso rose to 40.25 per US Dollar in morning trade Thursday, its strongest level since January. It has since hovered around 40.45 Pesos per Dollar. The Philippine Peso's rise has been supported by a strong regional market which have embraced the prospects of further interest rate cuts by the US Federal Reserve in an attempt to avert a recession. This has encouraged traders to invest in the emerging Asian markets which hold high yielding assets.

Asian currencies have risen, led by Taiwan's Dollar on speculation that the region's wide interest rate advantage over the US will attract overseas investors. Alongside the Taiwan Dollar, the Indonesian Rupiah, Indian Rupee and the Philippine Peso have risen as asian stock markets climbed on the belief that earnings are able to rise despite the economic recession in the US. Taiwan was the top performer among the rising Asian currencies, hitting its strongest in 21 months.

''It's mainly foreign fund inflows that's lifting the Taiwan dollar,'' said Henry Lin, a currency trader at Shin Kong Commercial Bank in Taipei.

''Taiwan's interest rates are already higher than those in the US, and there's some fund repatriation by local investors.''

In forex trading, The Taiwan dollar gained 0.4 percent to NT$31.521 against the US Dollar this afternoon in Taipei. It rose to NT$31.5 which is its highest level since May 2006. The Rupiah added 0.2 percent to 9,171, while the Philippine peso rose 0.6 percent to 40.580 pesos against the US Dollar. India's rupee gained for the first time in five days, adding 0.5 percent to 39.99 versus the US Dollar.

Taiwan's central bank increased its borrowing rate to 3.375 percent in December, while the US Federal Reserve has reduced borrowing costs to 3 percent. The main driver for the Taiwan dollar is the decline in US interest rates according to Barclays capital. The rising Asian currencies is the same occurence happening with the Australian Dollar. The wider the interest rate differential between two countries, the higher the advantage for the nation with a contractionary response.

The NZ Dollar may fall on weaker global growth, which will also reduce the demand for the currencies of the nations who take advantage of high commodity prices and high yields. Such a country include New Zealand's closest neighbour Australia, whos interest rate has hit a 12-year high of 7 percent after the Reserve Bank of Australia (RBA) raised rates by 25 basis points last month. The Group of 7 (G7) meeting in Tokyo have indicated that further rate cuts and tax reductions will me needed in order to boost the slowing world economy which is already in the midst of a recession. The NZ Dollar may fall on the back of a recession as it may cause a reduction of investment into higher yielding currencies. ''As worries about the health of the global economy escalate, we'd expect high-yielding currencies like the New Zealand dollar to under perform relative to safe haven currencies like the yen,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. New Zealand's interest rate is the second highest in the world among the AAA rated nations. Its economy has already begun to slow down, with the housing market growing at a record slow pace, rising at 8.9 percent in January from a year earlier.

In forex trading, the NZ Dollar may fall later this year amidst a slowing world economy. Currently, it traded at 78.80 US cents compared with a previous trade of 78.85 US cents. Against the Japanese Yen, it traded at 84.53 Yen from 84.60 Yen. Other currencies posting possible long term falls include the Philippine Peso.

The Philippine Peso is set to fall in 2008 as it may struggle to retain its current strong position as it faces reduced exports and a drop in its attractive yields. The Philippine peso was Asia's best performing currency in 2007 amidst the strong influx of foreign exchange inflows from Overseas Filipino Workers (OFWs) coming home to their Philippine based families during the Christmas season. It gained ahead against the Asian currencies, with a 19 percent rise against the US Dollar, high yield, cheap stock market and a mild policy towards the Philippine Peso. Despite this, many of those factors have already changed. The central bank cut interest rates by 2.25 percent in the past 12 months and foreign investors have avoided risky markets, plagued by the Subprime mortgage crisis. ''The more uncertain growth environment, higher oil prices and slower remittance growth should mark the pace of the peso gains lower,'' said Yen Ping Ho, a strategist at JPMorgan Chase Bank. The Philippine Peso is set to fall in the midst of a possible recession in the US and growing prices at the bowser.

How about Philippine exports? The bulging Philippine Peso has already been blamed for a sharp reduction of exports during November 2007, effectively widening the trade deficit gap. Combine this with a further reduction in the economic growth of The Philippines' main trading partners Japan and the US. The outlook for the Philippine Peso and its economy looks bleak in the long term.

In terms of yields, the Philippine borrowing rate has already hit a 15-year low of 5.25 percent after the four interest rate cuts in the year 2007. The Philippine central bank is set to follow suit with the unexpectedly large rate cut of 1.25 percent last month by the US Federal Reserve. ''With the borrowing rate at 5.25 percent and biased downward, it will potentially erode the peso's status as a high yielding currency,'' said Christy Tan, a strategist at Bank of America. The Filipino Peso's yields are already heavily disadvantaged compared to Indonesia's 8 percent borrowing rate and India's 6 percent borrowing rate.

The Philippine Peso is set to fall in forex trading, already losing its top position against the Chinese Yuan and the Malaysian Ringgit, despite hitting an 8-year high at 40.5 Philippine Peso per US Dollar on January 15. Other Asia-pacific currencies have had mixed results in forex trading amidst concerns over the weakening US economy. The Philippine Peso traded at 40.65 per US Dollar from 40.50 Peso per Dollar in February 1. The US Dollar was up slightly at 1.4189 Singapore dollars to the Dollar on Friday from 1.4166 the week before. The Japanese Yen traded fell to 107.37 Yen to the US Dollar compared with 106.34 Yen a week earlier. Despite Australia's wide advantage in its yield, it is set to have a range bound week due to concerns on the US. The Australian Dollar is currently hovering in the middle of the 89 US cents mark. Perhaps we will see another brief improvement on the Philippine Peso performance, riding on the backs of homebound Overseas Filipino Workers (OFWs) coming home during the holiday seasons?

The Philippine Peso reached a 7 1/2 year high against the U.S. Dollar whie the South Korea's Won incurred a sharp decline after US. job data increased the appetite for higher risk investments amidst the Federal Reserve decision to cut interest rates. In the Asian region, every currency appreciated against the US Dollar apart from the Taiwan Dollar and the Korean Won. The US Federal Reserve on Tuesday cut its interest rate by a quarter of a percentage point to 4.25 percent, its third rate cut in an expansionary stance. Investors and traders believe that a cut in interest rates by the Central Bank of the Philippines on December 20 is the only way to curb the rising Peso. Despite the ongoing subprime crisis in the US, the Filipino Peso is said to remain strong due to the strong foreign exchange inflows from Overseas Filipino Workers (OFWs) to their families amidst the approaching Christmas season.

In forex trading, the Philippine Peso strengthened 0.4 percent against the US Dollar today. It hit 41.58 per US Dollar. The Philippine Peso has risen close to a total of 19 percent against the US Dollar this year and is at a high level since hitting 41.28 Pesos on May 10 of 2000.

The Brazilian Real fell to a 7-week low on a tightened trade surplus. Brazilian imports rose to 3.36 billion dollars in the week ended November 5 from 1.99 billion dollars the previous week, Industry and Trade Ministry said in Brasilia today. The trade surplus fell to 139 million dollars from 693 million dollars. The Brazilian Real fell further due to a government initiative to create a 10 billion dollar fund to assist Brazilian companies who want to expand overseas. ''We are seeing much more clearly now the negative impact that the strong real is having on the trade balance because of traditionally higher import volumes at this time of year,'' said Luiz Carlos Barroso Simao, partner and chief strategist in Rio de Janeiro at Mandarim Investimentos.

The Brazilian Real fell for a fourth day in forex trading, declining by 1.1 percent to 1.8232 per dollar in Ney York, its weakest since October 4 on a closing basis. Brazil's currency has weakened 4.7 percent altogether this month, reducing its advance this year to 17 percent.

South Korean Won hits its biggest weekly decline in 3 months as investors release holdings of the nations stocks on jitters that the credit market will slow down economic growth. This was shown through stock exchange data which revealed that fund managers sold more of the nation's shares than they bought for 12 consecutive days. ''The won looks to be more vulnerable than some other regional currencies,'' Takashi Yamamoto, chief trader at Mitsubishi UFJ Trust & Banking Corp. in Singapore, said yesterday. ''Investors' risk appetite seems to be declining quite sharply, prompting them to sell emerging-market assets.'' A factor to the decline is also due to the international reluctance to continue high risk trades.

The South Korean Won declined 1.4 percent this week in forex trading to 930.60 per dollar, according to Seoul Money Brokerage Services Ltd. It was the second straight weekly loss. The currency may fall around 942 next week, Yamamoto said.