Forex Dollar weighed by trouble for Fannie Mae, Freddie Mac

The dollar was weighed by news that the U.S. government may have to step in to salvage troubled mortgage lenders Fannie Mae and Freddie Mac with state ownership.

After doubts emerged this week about the capitalisation needs of the two government-sponsored bodies, the news that the government may intervene to return the two companies to public ownership made markets nervous.

'Traders may look to further limit any exposure to the dollar as we move into the weekend break,' particularly ahead of economic data later today, said James Hughes at CMC Markets.

The University of Michigan consumer optimism indicator is expected to erode slightly to 56.0 in July from the previous reading of 56.4, remaining near a record low.

The trade deficit is also expected to worsen, to $62.1 billion in May from $60.9 billion in the prior month, driven by higher crude oil costs.

Additionally, the dollar is being hurt by oil prices inching higher once again as well as geopolitical tensions resurfacing in the Middle East.

The euro and pound, meanwhile, are not expected to show much momentum today, as few fundamental drivers are scheduled and after recent economic data has highlighted the extent to which growth is slowing across Europe.

The possibility of a recession in the euro zone will keep the European Central Bank from raising rates any more this year, with most analysts expecting the next move to be a cut after several months of staying on hold.

In the UK, too, data has shown the economy may already be entering a recession -- a view which has forced the Bank of England to keep interest rates unchanged on Thursday despite a flare-up in inflation.

Comex Copper Up In Reaction To Other Markets

Comex copper has a stronger tone as it reacts to moves in other markets. Renewed worries about the financial sector, including market jitters about mortgage giants Fannie Mae and Freddie Mac, have contributed to U.S. dollar weakness, says Shawn Hackett, president of Hackett Financial Advisors. "Precious metals and oil are going up, and it's creating a general concern about an escalating inflation scenario," he says. "Copper is gaining the benefit of that." September copper is up 5.10 cents to $3.7695 a pound. The area up around $4 will provide resistance, Hackett says. "Every time we get up there and try to go through, we fall back," he says. Meanwhile, support lies around $3.50. "Until we break either up or down from either of those two sides, we're basically going back and forth," he adds. "We're in a trading range." (ALS)

EUR/USD: Oil prices weigh on the Dollar

(Barcelona) – The Dollar has plunged as oil prices hit a fresh record high, with the Euro hitting 1.5868. The ActionForex.com Technical Team expects the upward move to continue: “EUR/USD's rally extends further as expected and reaches as high as 1.5868 so far. With correction from 1.5908 completed at 1.5611, rise from there is expected to continue further to retest 1.5908 high first.”

On the downside, the ActionForex.com Technical Team forecasts: “Below 1.5763 will turn intraday outlook neutral first. But another rally is sitll expected as long as downside is contained by 1.5611 support.”

Will Japan and the Eurozone see Decreased Growth Over Next Six Months?

Fundamental Headlines

• EURUSD – A highly appreciated euro deterred foreign consumers in May, as German and French exports fell the most in four years. German shipments fell 3.2 percent in April, the most since June 2004, while French exports declined 1.7 percent. Over the past year, the euro has gained nearly 18 percent on the dollar and 15 percent on the sterling, diminishing competitiveness among traders. The German data was unexpected, suggesting that the U.S.-led global cool down is beginning to affect Europe’s two largest economies. Discuss the topic and your trade ideas in the EUR/USD Forum.
• USDJPY – Japan’s equipment orders report, an important indicator to assess the market and predict capital gain over the next three to six months, rose 10.4 percent in May. The rise is considerate, given orders rose 5.5 percent in April, and only a 1.1 percent increase was expected. Heavy investment in steel headlined the increase, which will have a hard time supporting Japan’s capital investment. More than likely, as inflation increases, capital will decelerate, and there will be a negative reading for the May-June data. Discuss the topic and your trade ideas in the USD/JPY Forum.
• AUDUSD – Westpac Banking Corporations’ confidence index dropped by 6.7 percent to a 16-year low, to 79 points, the sixth straight such reading below 100. Consumers, deterred by upward inflationary pressures and the highest borrowing costs in 12 years, have been less inclined to spend money on property or at retailers. As sentiment decreases and home-loan approvals decline as well, it’s becoming increasingly clear that the RBA is leaning away from another rate hike this year.

Bank Indonesia Raises Borrowing Costs

July 8th, 2008

The Bank Indonesia increased the interest rates today for its third meeting in a row to efficiently fight the accelerating inflation caused by the growing food and oil prices.

The central bank voted for the interest rate to be raised from 8.5 percent to 8.75 percent. The only reason the government wants to hold the rates that high, despite the unpopularity of such measures, is the fastest price growth in Indonesia in the last 21months.

Although the rate of the Indonesian rupiah remains quite steady against the U.S. dollar since April this year, the USD/IDR rate may experience some decline, as this interest rate hike may cause more investors to secure their assets in the Indonesian currencies and get a higher yield.

The rate increase wasn’t a surprise for the market analysts — the growing fuels costs cause protests by the transportation workers world-wide and Indonesia isn’t the exception. Despite the fact that the high borrowing costs may hurt the position of the current President Susilo Bambang Yudhoyono on the general elections next year, the inflation remains the central bank’s main priority.

NZD Risks Falling Low against Yen

July 8th, 2008

According to the analysts from Citigroup Global Markets Inc., the New Zealand dollar may experience the lowest value against the Japanese yen in more than 10 month if it closes below the current triangle pattern support line.

NZD/JPY currency pair is supported at 79.97 level, where the ascending trendline of the triangle pattern is clearly visible on the weekly chart. The descending trendline of a triangle starts from the highest point of the week of July 22, 2008, while the ascending trendline starts from the lowest point of the week of August 12, 2008.

The weekly close below the support trendline at 79.97 will trigger strong downtrend on the NZD/JPY pair, which may last to the March low near 76.71 and if that level is broken to the lowest point of the triangle near 74.26.

The currency pair opened at 80.74 today and is traded near 80.73 as of 7:44 GMT. This weekly loss is also negligible as the week opened at 80.75. Last week NZD/JPY lost almost 1 percent.

Dollar Continues Friday’s Growth

July 8th, 2008

The U.S. dollar continued to grow today during the Asian trading session as the traders followed the Friday’s trend and are now expecting some hawkish commentaries from the next Ben Bernanke’s speech.

Despite the weak report on the employment situation, which was released last Friday, the investors saw it as a rather positive signal and switched to buying the dollar, which lead to the new weekly minimums on EUR/USD.

Dollar growth against the euro, the Japanese yen and British pound stimulated the fall on the oil market today. But some market analysts expect the EUR/USD rate to return to the high levels of the last Thursday near 1.5760 later today.

Ben Bernanke, the Chairman of the Federal Reserve, will be delivering a speech at Federal Deposit Insurance Corporation?s Forum on Mortgage Lending to Low and Moderate Income Households tomorrow. Traders expect that his commentary may have some positive effect on the U.S. currency.

EUR/USD fell down from 1.5691 to 1.5661 as of 10:54 GMT today, but the lowest daily value was at as low as 1.5611, which is the lowest level since June 25. USD/JPY opened at 106.81 today and rose to 107.44, while the daily maximum is already at 107.70.