Broker's Notes: Dollar gains against the yen

US Dollar

The US dollar fought its way higher on the yen on Friday following a report Japan's prime minister and the head of its central bank would meet to discuss ways to deal with the currency's export-sapping strength. Speculation has been intense that authorities would finally act on the yen given its strength was hitting stocks and exports.

The BOJ confirmed it had checked forex rates on Thursday but emphasised it had no levels in mind. Possible options for the BOJ may include steps such as trying to expand the amount of banks' current account balances parked at the BOJ, expanding the amount of its fixed-rate fund supply operation or extending the maturity. The currency’s strength has eroded exporters’ profits in recent days and being an export-dependent nation, Japan is naturally sensitive to any major moves in the Yen.

Euro-zone industrial production

Euro-zone industrial production figures that came out yesterday were much weaker than expected, falling 0.1 percent in the month of June. The markets were surprised but the contraction in German and French industrial production was the first clues that EZ industrial production would be weak. The ECB Monthly Bulletin that was released yesterday echoed comments made by ECB President Jean Claude Trichet after the last monetary policy meeting. The report said price pressures remained contained for the time being and interest rates are appropriate. The ECB expects the economy to expand at a moderate uneven pace and for growth in the third quarter to be better than expected.

Eurozone GDP numbers are scheduled for release on today along with the trade balance. After growing only 0.2 percent in the first quarter, second quarter growth is expected to be substantially higher. As far as the trading levels are concerned the most significant near-term support level is the 38.2% Fibonacci Retracement of 1.2776, drawn from the June low of 1.1876 to the August high of 1.3333, which coincides with the 100-Day Simple Moving Average. If this level is broken, the pair could see further support at the 50% Fibonacci Retracement of 1.2604.

Sterling

No economic data is schedule for release from the UK today and the calendar remains devoid of any major data until mid next week. This means that the market’s appetite for risk and the U.S. dollar will drive flows in the GBP. The 1.55 level is obviously a significant support for the currency pair and if risk aversion is sustained, there is a good chance the GBP/USD could slip as low as 1.54.

Gold

Gold is set for its second weekly advance as growing concern that the global economic recovery may be in jeopardy helps rekindle investor interest in safer assets. Gold futures on DGCX gained 0.3 percent to $1,217 an ounce in the early deals of Friday, after jumping 1.3 percent yesterday. The metal rose 1 percent this week. December-delivery futures climbed 0.2 percent to $1,216.90. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose for a second day, adding 0.91 metric ton to 1,286.70 tons yesterday.

Oil

Oil, down more than 5 percent in New York this week, is still within an upward-sloping channel going back about three months. In the coming week, oil may be supported around $75.84- to $76.20 a barrel, the bottom of the uptrend channel. That’s close to the 50 percent Fibonacci retracement of the decline from May 3 to May 20 at $75.69. Crude slumped to a one-month low this week amid concern the global economic recovery would stall and damp fuel demand.

Indian equities

The benchmark Bombay Stock Exchange (BSE) share index was up 0.4 percent up. Foreigners are net buyers of $11.3 billion of domestic equities so far in 2010, adding to last year's record $17.5 billion inflows. The dollar index an indicator of the U.S. currency's strength against six majors, was down 0.2 percent. Most Asian currencies also rose against the dollar.

Source: Richcomm Global, Dubai, www.richcommglobal.com