By Korman Tam of forexnews.com
The dollar fell across the board, slumping to a two-week low against the euro to 1.4837 and relinquishing the 1.96-level versus the sterling. The catalyst for the greenback’s losses was another round of weak US data reigniting fears that the economy is headed into recession.
The Philadelphia Fed manufacturing index plunged to its lowest level since 2001 to minus 24 in February deteriorating further from the minus 20.9 reading a month earlier and defying expectations for an improvement to minus 11. The January leading economic indicators index was in line with expectations, down 0.1% versus a 0.2% decline from the previous month. Meanwhile, weekly jobless claims came in at 349k, versus a revised 358k from the previous week.
Given the current scenario of deteriorating fundamentals and lingering inflationary pressure, we expect the Fed to maintain its focus on growth with inflation reports taking a secondary role. Yesterday’s stronger than expected consumer price index reports failed to deter markets from pricing in further aggressive rate cuts by the FOMC. We look for the Fed to cut rates by 50-basis points when they meet next month, taking their benchmark lending down to 2.5%.
USD Slumps on Dismal Data
Fed Comments Pushes The Dollar Down
A recent speech by Ben Bernanke, chairman of the US Federal Reserve Bank, sent the Dollar spiraling downward to fresh lows against all of the world's major currencies. This is perhaps surprising, given that Bernanke used the speech to warn that higher-than-expected inflation may drive the Fed to hike rates, which is exactly what Dollar bulls wanted to hear. The downside of the speech, reflected in the markets' reaction, was that the primary cause of the inflation is rising oil prices, would could plunge the US economy into stagflation: slow growth and high inflation, an unenviable position if there ever was one.
A recap of today's move. End of 2nd week trade
This is the continues chart (zoom in) I posted earlier. Remember those significant levels I've said earlier? Price roam all of it in a span of 16 hours.
Here's what I did. When the price touched the upper channel and the Stoch, CCI indis crossed down; I open a short (sell) hedge. At 4am EST, there were 2 EUR news announcements followed by ECB President Trichet dovish speech. Both news was negative bias to the Euro, German Ifo Business Climate Index came out 107.0 with expectations of 108.4 and the German Ifo Business Expectations Index came out 102.8 from 104.8 expectations. The news gave eur/chf a whipsaw then fall straight down to the 38.2 fibo. Then afterward drop to the lower channel... made a small correction back to the 38.2 fibo before continues its down move to the 50 fibo. The bear lost steam from there 'til market close of the week. I closed the positions on the third bounce of the lower channel.
To make it short. It was another perfect call.
PMTFC end the week with a total of $3420 equity, and $7357 for TN's account. I know the results this week is not something to hoot and holler, but it is better to end the week with small profits than small lose.
Here are the reasons of the small gained:
- If eur/chf is trending downward, I will only trade with small margin. It is because short hedge position/s is risky with a uptrending carry trade pairs.
- The Fed is pressuring the Chinese government to slow down their fast rising currency. If the yuan makes an impulsive drop, we will see a snowball effect to the global market, just like last Feb-Mar. Related topic here> forex factory
- There is also the subprime mortgage problem going on in the States. Like what happened last February. More of the story here> CNBC
- More of current negative news of EUR. Related topic here> bloomberg
- Japan's possible of a .25bp rate increase, which will tighten the interest rate gaps of major pairs. Related topic here> forex factory
All this will affect the carrys. You can read the CNBC news article yesterday, here CNBC
