Forex Trading

Turmoil in the U.S. auto industry had currency traders moving into safe haven positions of the Dollar and Yen. Further equity losses also contributed to a lack of confidence in the global economy and lower risk taking.



USD - Threat of Auto Bankruptcy Spurs Dollar Buying

The Dollar continued its appreciation yesterday as fears of bankruptcy filings in the U.S. auto industry sparked safe haven currency bets. Losses in U.S. equity markets triggered by autos and bank worries also helped to bring traders to the Dollar. The EUR/USD finished the day at 1.3190 from 1.3268, while the GBP/USD ended at 1.4256 from 1.4276.

Yesterday there was little reason for Forex Traders to take positions in riskier currencies. Over the weekend Treasury Secretary Geithner said some banks may need further capital injections. Also shaping the markets was the Obama administration's position that it may prefer a bankruptcy filing of an auto maker versus further bailouts. Now a looming threat of a General Motors or Chrysler bankruptcy filing hangs over the head of the market. A situation like this could have a detrimental effect on the financial markets as the debt of these two companies is widely held throughout the global financial system.

Looking to today's trading, traders should be aware of the release of Canadian monthly GDP at 12:30 GMT. The USD/CAD appreciated by 1.2% today as the market anticipates a contraction of Canadian GDP by 0.6% in January. If the result comes in worse than the forecasted value, look for the USD/CAD to rise close to the 1.2700 resistance level.

EUR - Is Inflation a Concern for the EUR?

The EUR appears to be in a correction as the currency's gains on the Dollar are unraveling. The currency has slid the past 2 days amid concerns of future monetary policy moves by the European Central Bank (ECB) and a drop in risk tolerance. Yesterday the EUR finished lower against the Dollar while the EUR/GBP fell to 0.9250 from 0.9312.

Market forecasts have the ECB slashing rates by another 50 basis points later this week. However a debate still rages whether the ECB will take further measures to ease the strained European credit markets through a program of buying long term government bonds. This would follow a move taken by the U.S. Federal Reserve and Bank of Japan. Yesterday ECB President Trichet addressed the European Parliament and said that the European economy has weakened since the beginning of the year. Also notable was the downgrade of the sovereign debt rating of Ireland.

Today the EUR may be impacted by the release of the yearly CPI Flash Estimate. It is an early indicator of inflation in the EU. Trichet yesterday mentioned that there is no significant risk of deflation and the ECB has set a target rate of inflation near 2%. The Flash Estimate is forecasted to rise by 0.7%. A higher number that contradicts Trichet's statement yesterday may hurt the EUR further during today's trading.

JPY - Yen Boosted by Risk Adverse Trades

Yesterday the USD/JPY saw heavy volatility on the heels of the Obama administration favoring an orderly bankruptcy of the American auto manufactures and large losses in equity markets. The pair ended at 98.15 from 97.75. The EUR/JPY also experienced heavy volatility yesterday, reaching as low as 126.40 to close at 130.05 from an opening price of 129.76. This was the strongest the Yen has been against the EUR in the past 11 days.

In early morning hours of the Japanese trading session, the Yen began to slip after Japanese unemployment numbers came in worse than expected. Some economists believe that unemployment rates may not yet have peaked. As the number of Japanese exports continues to decline, manufacturers will eventually cut back on costs in the form of further workforce reductions. Traders will be watching for the release of the Tankan Manufacturing Index later today. It is a key gauge of market sentiment in the Japanese economy. The release of poor results for this indicator could send the Yen lower against the other majors.

Oil - Crude Drops below $50

The price of Crude Oil has once again dropped below the psychological price level of $50. Crude Oil shed 4.5% yesterday as fears of bankruptcy for the Big 3 American auto manufacturers hurt the demand for Crude and sent equity markets lower. The recent recovery in the Dollar has also been a source of restrain in the price of Crude Oil.

The market has once again sent the price of Crude lower as the global economy shows very few signs of recovery. Continued job losses and equity losses have dropped the price of Crude Oil from last week's high of $54. Traders may not see any support today as the U.S. CB Consumer Confidence will be released today at 2:00pm GMT. Don't be surprised to see a gloomy reading from American consumers. This may send Oil lower today, near the $48 price level.

Article Source - Threat of the U.S. Auto Bankruptcy Boosts the Dollar