Finotec News Archive - August 28 2007

Dollar gains vs. euro,slips vs. yen

Buki Ben Natan
28 August 2007

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The dollar gained against the euro on Monday, but slipped against the yen as investors attempted to minimize exposure to risky assets amid lingering fears of a global credit crisis. European Central Bank President Jean-Claude Trichet added to weight on the euro on Monday after he said his recent comments on policy on Aug. 2 preceded a period of market volatility. In those comments on monetary policy, he used the phrase "strong vigilance," signaling action on ECB rates was likely. But that was little reassurance for dealers who had been betting another benchmark interest-rate hike by the ECB would likely boost the euro.

"The market may have taken (Trichet's) comments as slightly less hawkish and we saw the euro dip below $1.3640, but we have to wait and see," said John McCarthy, director of foreign exchange trading at ING Capital Markets. "But it is hard to believe injections of liquidity can be followed by an immediate rate hike."

In recent weeks, central banks worldwide have added liquidity to financial systems in an effort to ease credit problems. The euro traded 0.2 percent lower at $1.3650, snapping a three-day advance against the dollar.

The dollar's decline ended three straight days of gains against the Japanese currency. Of particular interest to investors will be developments this week regarding potential monetary policy responses to relatively high financial market volatility and toughening lending conditions, including a speech on Friday by Federal Reserve Chairman Ben Bernanke. Small declines in the three major U.S. stock indexes, which investors have been watching as a gauge of appetite for risk, supported the yen early on Monday and left dealers uncertain whether last week's air of calm in markets had been premature following weeks of volatility caused by rapidly tightening credit markets.

Throughout the market turmoil of the last month, profitable strategies such as the carry trade, in which investors borrow low-yielding currencies like the yen to buy higher-yielding assets, have been damaged and government debt and money markets have benefited. This week, investors will be especially focused on Bernanke's speech on Friday to see if he sheds light on whether market developments require additional monetary policy responses.

After the Federal Reserve entered the fray to defuse the crisis by slashing the lending rate to commercial banks on Aug. 17 and promising to do more if needed, some confidence in the financial system cautiously returned. But analysts said it is still far too early to say the credit storm has passed, especially if the yen continues to strengthen and U.S. stock markets are weak. "I think risk aversion will remain a cloud over the market for the foreseeable future and dealers have little choice but to keep an eye out for the next shoe to drop," said Jay Meisler, principal of online forum Global-view.com.

Elswehere, the Australian dollar was up for a fourth straight session against the dollar with a 0.4 percent gain to $0.8301 on Monday. The New Zealand dollar was down 0.3 percent at $0.7191 , snapping three days of gains.

Finotec Analysis Team
28 August 2007

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Today's Economic Events

Time	Event	Currency	Period	Previous	Forecast	Significance	Actual
18:00	FOMC Meeting Minutes	USD	Aug
The Federal Open Market Committee (FOMC) Meeting Minutes are a detailed record of the committee's interest rate meeting held about two weeks earlier. The minutes expose the votes cast at the meeting and can give traders further insight into the central bank's stance on monetary policy. Traders carefully comb the minutes for clues regarding future interest rate shifts.
14:00	Consumer Confidence	USD	Aug	112.6	104.0		105.0
Consumer Confidence Measures the mood of consumers in regard to economic conditions. The reading is derived from a monthly survey that asks respondents to evaluate the prospects for the economy in the future. Higher readings point to higher consumer optimism. When consumers are optimistic they tend to purchase more goods and services, which stimulates the economy.
14:00	Richmond Fed Index	USD	Aug	4	1		7
Richmond Fed Index Measures the general business conditions of manufacturers in the Richmond Federal Reserve district. The index is derived from a survey that asks respondents to rate the level of general business activity as \'decrease\', \'increase\', or \'no change\'. This report usually has little impact because the New York and Philadelphia Federal Reserve release similar reports about two weeks earlier.
12:55	red book	USD	Weekly	-0.7%	NA		NA
red book
08:00	Consumption Indicator	CHF	Jul	2.309	NA		2.261
Consumption Indicator Measures the total amount spent by consumers on goods and services.
08:00	German Ifo Business Climate Index	EUR	Aug	106.4	105.4		105.8
German Ifo Business Climate Index
08:00	private loans	EUR	Jul	10.8%	10.6%		11.7%
private loans Measures the private sector loans. A rising trend has a possitive effect on the nations currency.
00:00	Leading Index m/m	AUD	Jul	0.2%	0.2%		0.4%
Leading Index m/m Measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads. The index is published monthly by The Conference Board, a leading private US research group, but traders tend to pay little attention because the components that make up the index are reported at an earlier date.
00:00	German CPI m/m (p) Tentative	EUR	Aug	0.4%	-0.1%		-0.1%
German CPI m/m (p) Tentative