Month-end demand from fund managers rebalancing Forex hedges boost the Dollar

The Dollar recorded its biggest monthly gain against a basket of currencies in more than 17 years on Friday, boosted by month-end demand and concerns about a deteriorating global economy. The Yen pared most of its gains against the Dollar, but traded sharply higher against the Euro as investors remained averse to risk after bleak US economic reports heightened global recession fears. Financial markets took little comfort from the Bank of Japan's interest rate cut, the latest monetary policy initiative after central banks in the United States and other countries lowered rates last week to support growth.
News and Events:


The Dollar recorded its biggest monthly gain against a basket of currencies in more than 17 years on Friday, boosted by month-end demand and concerns about a deteriorating global economy. The Yen pared most of its gains against the Dollar, but traded sharply higher against the Euro as investors remained averse to risk after bleak US economic reports heightened global recession fears.

The strength in the Dollar and the Yen came despite higher US equity prices on Friday. In recent weeks, rising stocks have typically indicated improving risk appetite, weighing on the US and Japanese currencies.

In October, EurUsd was down 9.87% at 1.2727 having hit 1.2330 low, it’s worst monthly performance since its launch in 1999. EurJpy fell 16.29% to 125.32 after posting 113.63 low. UsdJpy traded down 7.12% at 98.47. GbpUsd fell 9.84% to 1.6077 and GbpJpy was 16.27% lower at 158.29.

On Friday, EurUsd fell 1.13% at 1.2727. EurJpy was 1.44% lower at 125.32. UsdJpy fell 0.31% to 98.47. GbpUsd lost 1.79% at 1.6077 and GbpJpy was 2.09% lower at 158.29. UsdChf rose 1.67% to 1.1582.

Financial markets took little comfort from the Bank of Japan's interest rate cut, the latest monetary policy initiative after central banks in the United States and other countries lowered rates last week to support growth. Investors were unconvinced a 20bp rate cut by the BoJ would do much to avoid a slowdown in the Japanese economy. Month-end demand from global fund managers seeking to rebalance foreign exchange hedges in their portfolios also helped boost the Dollar on Friday. Meanwhile, the Yen strengthened despite the BoJ rate cut, as risk aversion, which tends to favor the Yen, took hold.






Today's Key Issues (time in GMT):


00:00 JPY Market Holiday
08:15 EUR October Spain Manufacturing PMI 37 vs 38.3
08:30 CHF October PMI 45.5 vs 47.8
09:00 EUR October Euro Zone Markit Mfg PMI 41.3 vs 45
09:30 GBP October CIPS/Markit Mfg PMI 40 vs 41
15:00 USD September Construction spending -0.8% vs 0%
15:00 USD October ISM Manufacturing PMI 41.5 vs 43.5
The Risk Today:

EurUsd:
Market dropped as low as 1.2330 last week. On the downside, further weakness will open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low. On the upside, only a return over 1.4000 (former trendline support) and 1.5000 will release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3769 14th October high.


GbpUsd:
Market hit 1.5265 low on 24th October and then recovered up to 1.6673 high last week. Strong support holds 1.5279 Monday low. Initial support holds 1.5939 Wednesday low. Deep following supports are 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.7631 last weeks high ahead of 1.7144 (38.2% retracement of 2.0158 – 1.5265 3-month drop). Further resistance holds 1.7744 (50% retracement).


UsdJpy:
Market broke down the lower trendline on September-October downtrend accelerating drop to 90.91 last Friday. Further pressure might open the way down to 79.70 April 1995 low. On the upside, only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high.


UsdChf:
Market posted new high 1.1749 on 24th October and then reversed down to 1.1203 low last week. Further advance may open the way to 1.1895 October 2007 high and strong resistance. On the downside, recent weakness below 1.1489 early October high would undermine the current uptrend and reverse through 1.0692 22nd September low and down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.



Resistance and Support:


By
Jean-Claude Braha
- ACM Advanced Currency Markets, Geneva, Switzerland
_____________________________________
Provided by ACM: http://www.ac-markets.com