Daily Forex Analysis by Finexo.com 10/12/2009

GBP

The United Kingdom’s Finance Minister, Alistair Darling indicated that he will probably raise the estimate of borrowing by the government from a record 175 Billion Pounds, admitting that the recession has been deeper and required more intervention than he initially thought back in April. The fear is that an increase in public borrowing might cause England to lose its triple-A rating if the country does not act to repair the state of its finances soon. The fears on Wednesday were backed up by the downgrade of Greek sovereign debt a day earlier as well as the warning that Moody’s, the largest rater of corporate and government debt, gave to the US and UK regarding their spending and borrowing.

At 11:00PM GMT, the Pound Sterling was trading down .3% against the US Dollar to 1.6236, down .42% versus the Euro to .9063, down .37% to the Swiss Franc to 1.6664, down .98% against the Japanese Yen to 142.57, down .76% to the Australian Dollar to 1.788 and against the Canadian Dollar, down .58% to 1.7224.

USD

After a brief respite from the selling, the US Dollar returned to its losing ways on Wednesday a day after Moody’s warned the US of a rating cut should the borrowing and spending policy continue. The Dollar had been up on the day broadly after short coverings and safe-haven flows in the wake of Greece’s rating downgrade to “A”. However, after investors realized that Greece is protected ultimately by the European Union, the safe have flows dropped off and traders working on the Moody’s warning fear came back in with their shorts.

At 11:10PM GMT, the US Dollar was trading down .05% to the Euro to 1.4708 after the Euro hit a month low against the Greenback. The Dollar also declined to the Japanese Yen by .78% to hold in at 87.73, down .13% against the Canadian Dollar to 1.0623, down .31% versus the Australian Dollar to .9064, down .61% to the Kiwi to .7111 and down .02% against the Swiss Franc to 1.027.

Chart: USD/JPY

The USD and JPY strength have suddenly moved back into positive correlation against the rest of the market on the developments in interest rates and risk aversion on Wednesday, though the JPY has certainly taken up the vanguard position after its recent desperate bout of weakness. This leads us to ask where the USD/JPY throwback might stop. The USD/JPY bulls might not want to look at the last time the pair appeared to have rallied to the point of rejecting the downtrend in August, when US 10-year rates appeared to be trying to retake the 4% high for the year. If bonds find support, then we would focus in on the 0.618 retracement area around 87.10. Note that the high on Friday grazed the Ichimoku shadow, an important strategic resistance level now.

usdjpy

Written by Finexo.com