US Dollar Continues Fall after USD/JPY Sets New Low

Tuesday, 26 October 2010

The USD was broadly lower against a basket of currencies on Tuesday morning - as the international Forex markets ingested the news out of the G-20 summit over the weekend. We wrote yesterday how there was relatively little news out of the meeting - with the main concern being the use of intervention by countries to help the exporting sector.

Possibly as a result of these overall conclusions from the meeting, the USD/JPY has now traded to a fresh 15 year low, striking the 80.00 level just as the morning bell sounded here in Japan. As we forecasted previously, we are expecting a lot more weakness in the currency pair now that intervention has officially (but not practically) been taken off the table by the bilateral trade talks.

In Britain, BBA Mortgages fell to an 18 month low, showing that the pickup of real-estate as a sector is lagging. House prices have continued to trend sideways - and investors are starting to see now as an inopportune time to purchase property. We do not blame them for having this view. In fact, many investors are stating that they are selling real estate - in favour of investments in other countries (and therefore other countries).

This could be said to imply that the expected volatility of the GBP in the coming weeks and months is low on investors list of concerns.

Additionally on the news docket out of the Eurozone was industrial orders. The figure topped expectations from economists, and thus provided a bit of extra pressure to the upside, especially for traders in the EUR/USD.

We believe that given this latest round of economic releases, the EUR/USD is set to stay above the 1.4200 level in the short term, but we will obviously have to review that outlook later in the week as more information is released from both the Eurozone and the US economy.

Adding to the argument for the EUR strength to continue is of course the weaker US Dollar - which is broad based weakness and nothing unusual for investors. However, even further impetus could come from ECB comments that were made by Tumpel-Gugerell, who said that the Eurozone is "still on track" for an economic recovery, and that the current monetary and fiscal policies being employed by countries in the area are "still appropriate".