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Forex outlook:
The dollar rallied against the yen on Monday, tracking gains in the U.S. stock market, as investors pared back extremely bearish bets on the greenback once it was able to move above key technical levels. However, the dollar was down slightly against the Euro and fell to a 15-year low against a basket of major currencies as traders speculated that woes in the U.S. credit market will prompt the Federal Reserve to cut interest rates."The dollar's recovery was due to gains in the stock market. It seems that in equities a lot of the bad news has already been priced in," said Antonio Sousa, currency strategist at DailyFX.com in New York. "Over the last year, the correlation between the Dow Jones industrial average and dollar/yen has been fairly tight," he added. The Dollar traded at the levels of 1.3787 vs. the Euro, 118.85 against the yen and 2.0305 vs. the sterling at 19:42 (GMT).
U.S. stocks rose on Monday, mainly on bargain-hunting after last week's sell-off. The market's rebound was led by U.S. consumer goods makers.
Traders had shuffled positions in the dollar index ahead of a Fed policy meeting on Tuesday. The Fed is expected to keep rates on hold at 5.25 percent after the one-day meeting. But some are looking for the U.S. central bank to acknowledge growing risks to economic growth stemming from problems in the credit markets, raising the chances of a rate cut in coming months. "It seems almost inconceivable that the Fed can brush the issue (credit market concerns) under the carpet," said Bear Stearns in its latest research note. "However, much depends on how it tackles the issue," it added.
Some traders also said the worst was not over for the dollar ".There is still a general feeling that the dollar has to move lower," said John McCarthy, director of foreign exchange trading at ING Capital Markets"The Euro looks particularly perky and when it rises above $1.3860, I think we'll see another round of dollar selling," he said. The growing crisis in the credit sector has led financial markets to start pricing in up to two quarter-percentage-point Fed rate cuts by the end of the year to shore up a slowing economy.
Gold:The Precious metal slipped in afternoon trade in New York on Monday after hitting one-week highs on a weaker dollar, as oil prices plummeted and concerns about credit markets resurfaced” Looking just at the U.S. dollar picture, it's fair to say that gold prices remain well supported," said Michael Widmer, director of research at Calyon Corporate and Investment Bank. "The dollar is one factor at the moment, but the second important factor is the market volatility. And if you have got equity markets being hit, then that generally means that gold prices don't do very well either." Some analysts said that despite gold's range-bound trade in the past weeks, it had potential to surge in the long-term. "We remain bullish towards gold and expect the metal to push towards $700 once the market moves out of the summer months," said James Moore, precious metals analyst at TheBullionDesk.com.
Crude Oil:U.S. crude oil futures plummeted more than 5 percent on Monday as signs of slowing economic growth raised worries that demand for petroleum products could be impaired before futures recouped some losses at the close. “The bottom line is that the market fears that a slowdown in the economy could slow the demand for oil," Phil Flynn, analyst at Alaron Trading in Chicago, wrote in a research note.
On the New York Mercantile Exchange, September crude last traded at $72 in floor trading and then continued to drop in electronic trading, plunging $3.88 or 5.1 percent to $71.60. That was the biggest one-day intraday loss for NYMEX crude since December 2004. Despite calls from the United States and the International Energy Agency -- adviser to 26 industrial nations -- OPEC officials have indicated a reluctance to raise output when ministers meet in September.
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