Broker's Notes: Fed move anticipation hurts US dollar

The dollar fell on Wednesday to an 8-1/2 month low against a basket of currencies and edged towards a 15-year trough versus the yen, hurt by expectations the U.S. Federal Reserve will further ease monetary policy. A broadly weak dollar helped push the euro to an eight-month high, though the single currency pared gains after Fitch downgraded Ireland's credit rating, renewing concerns about the fiscal health of peripheral euro zone countries. Comments by Chicago Fed President Charles Evans, who was quoted as saying the central bank should do much more to spur the economy, kept negative dollar sentiment firmly intact, however. This has intensified speculation the Fed will resume quantitative easing, possibly in November.

Gold

Gold hit a fresh record high on Wednesday, the eighth in the past nine consecutive sessions, riding on dollar weakness and market anticipation on more quantitative easing from the U.S. Federal Reserve. Economic uncertainties and weak dollar have helped gold rally 7 percent from a month earlier and 22 percent so far this year. Markets expected the momentum to stay after a surprise interest rate cut from the Bank of Japan fuelled anticipation of more monetary easing from the Fed. The market continues to maintain the bullish tilt with the close above the 2nd swing resistance. The near-term upside objective is at 1364.3. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 1356.1 and 1364.3, while 1st support hits today at 1326.5 and below there at 1305.1. 

Euro

The euro gained 7.6 percent last month as Fed easing speculation hotted up, even though the market is still wary of sovereign and banking risks in peripheral euro zone economies. It held steady at $1.3842 near an eight-month high of $1.3860 set on Tuesday. On the charts its next target is $1.3895, a 61.8 percent retracement of its fall from above $1.51 late last year to its June low. It then has its 200-week moving average at $1.3920 as the next resistance levels and support sits at $1.3790-1.3805. 

Yen

The dollar matched a 15-year low versus the yen on Wednesday as the U.S. currency stayed pressured on expectations of further quantitative easing from the Federal Reserve. The dollar fell to 82.87 yen, matching a low hit on since September 15th, when the Bank of Japan intervened to weaken the Japanese currency. Traders mentioned talk of a large Japanese bid placed ahead of rumoured stops at 82.85. 

Rupee

The Indian rupee strengthened to its highest level in nearly six months on Wednesday, as foreign banks and exporters sold dollars, tracking gains in local shares which fuelled expectations for further capital inflows. Rupee is quoting at 44.34/35 per dollar, after hitting 44.25 in early deals, its strongest since April 15 and 0.8 percent above Tuesday's close of 44.69/70. Cheaper offshore dollar compared with its onshore market counterpart provided arbitrage opportunities to banks that have access to both the markets. Indian shares rose more than 1 percent in early trade on Wednesday, with Reliance Industries leading the rise, driven by robust foreign fund inflows and strong world markets. Foreign funds have bought a record $20.1 billion of Indian equities so far this year, with more than one-third of that having come since the start of September. Dealers expect foreign fund inflows to maintain pace at least until end-October. 

Source: Richcomm Global Services DMCC, Dubai