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Forex outlook:
The dollar rose broadly on Wednesday in a technical rebound from record lows against the euro, partly driven by investors pulling back on overseas exposure in light of trouble in credit market. Until Wednesday, problem emanating from U.S. subprime mortage market were believed to be contained, but that view is shifting. Investors are cutting back on their exposure to risky assets in general, and unwinding bets on high yielding currencies that has been financed by borrowing in yen.
The yen rallied sharply against the euro, which helped drag the European single currency down against the dollar too. “ What we are seeing is a little bit of risk aversion and volatility returning to the market ,” said Joseph Trevsiani, chief market analyst at FX solution in Sadly River, New Jersey “Volatility in the natural enemy of the carry trade, so we are seeing a good pull back in the yen crosses.” he added.
Despite the gains in green back yesterday, we saw that sales of existing homes in the U.S. fell more than forecast last month, a sign that residential real estate remains mired in its worst recession in 16 years. Purchases declined 3.8 percent to an annual rate of 5.75 million, the slowest pace since November 2002, from a revised 5.98 million in May, the National Association of Realtors said today in Washington. At the same time, the supply of homes for sale dropped for the first time this year and the median price rose for the first time in 11 months. The housing slump, which slowed economic growth in the first quarter to the lowest level since 2002, is the biggest risk to the six-year economic expansion, according to Federal Reserve policy makers. “Economical data in U.S fell down yesterday this is the main reason to see dollar strengthening only as a correction of the market” said David Zin, chief economist, New York.
Gold: US. Gold fell from an 11-week high in New York as the dollar gained the most against the euro in a year, eroding the metal's appeal as an alternative investment. Silver also fell. Gold often moves in the opposite direction of the U.S. currency, which gained after U.S. stocks rebounded from a slump yesterday. Charts some investors use to predict currency movements suggested its decline to a record low against euro was too rapid. Before today, gold had gained 7.3 percent this year as the dollar slumped 4.5 percent against the euro. ``The dollar rallies, gold falls -- that's the traditional relationship,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois.
Crude Oil: Crude oil rose the most in more than nine weeks in New York after the U.S. government reported a third straight weekly decline in oil inventories and increased refinery operations. A gain in oil processing by refineries helped reduce U.S. supplies by 1.1 million barrels to 351 million barrels last week, the Energy Department report showed. Inventories in Cushing, Oklahoma, the main supply hub in the U.S., fell 1.38 million barrels to 21.2 million barrels, the lowest since February 2006. ``The crude oil market is well supplied,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. ``This market is teetering on a precipice. Today's crude moves show that the crude market has disconnected from fundamentals.'' The Algerian minister's comments ``shouldn't move the market much, maybe up slightly,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. Most OPEC ``comments lately have been, prices have been a little high, if we have to boost production, we will.''
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