Broker's Notes: Euro climbs to one month high

Euro

The euro rose to a one-month high against the dollar, with market participants citing buying from real money investors, or long-term investors such as pension funds and life insurers. The euro rose to $1.3134 its highest level since August 11. Against the yen, the euro rose as high as 112.71 yen also its highest in more than a month.

Yen

After Japan's first intervention in six years this week, the market is cautious about pushing the dollar down too far against the yen. It fluctuated between 85.60 and 85.20 yen about 3 yen above Wednesday's 15-year low at 82.87, which preceded Japanese authorities' return to yen selling. Caution about intervention continues to lend the dollar support when it nears 85.00 yen. Hedge funds that were dollar bears had been cutting long yen positions since Wednesday's action and some had not yet finished. Market participant also said Japanese exporters, who close their books for the half-year this month, may cap the dollar with sales around 86.00 yen. One trader said there were substantial sell orders lined up between 86 and 87 yen.

US dollar

The dollar index a gauge of its performance against six other major currencies slipped 0.2 percent to 81.125 and remained within reach of this week's one-month low at 80.997.    The index broke down through its 100-day moving average this week as speculation the Federal Reserve would turn to more quantitative easing later this year weighed on the dollar. While weekly US jobless claims on Thursday hinted at some stability in the labour market and contraction in regional factory activity slowed, the dollar index has not recovered much from the week's low nor challenged that moving average resistance. Based upon the inflation and weekly employment numbers, there is no reason for the Federal Reserve to grow more dovish at the FOMC meeting next week.      

Swiss Franc

The Switzerland Franc weakened against the dollar after the Swiss National Bank left rates on hold as expected at record low of 25bp, but cut its inflation target suggesting that it will maintain its ultra accommodative monetary policy for the foreseeable future. The SNB downgraded its inflation forecast markedly lower to 1.9% from 3.1% prior. The SNB refrained from any comment regarding the CHF’s recent strength but it has become increasingly clear that the currency’s massive appreciation against the euro and the dollar is acting as a defacto deflationary force in the economy thus allowing the SNB to maintain rates at record low levels despite the fact that the country is enjoying relatively robust growth.

Gold

Gold extended its rally to a record as the dollar weakened and investors sought wealth protection. Silver traded at the highest level since March 2008. Gold futures on Dubai Gold and Commodities Exchange for October delivery advanced 0.4 percent to an all- time high of $1,279.85 this morning. Silver reached a high of $20.94 an ounce and traded at $20.93. Gold typically moves inversely to the US currency. The Dollar Index, which measures the greenback’s strength against six major counterparts, lost 2.7 percent this month as the outlook for the US economy worsened, compared with gold’s 2.6 percent advance. The metal is set for a 10th annual gain as investors seek protection against financial turmoil in Europe and the prospect of slowing economic growth. The gold/silver ratio, used to measure the ounces of silver needed to buy an ounce of gold, has been on a steady decline since late August. It stood at a nearly 8-month low of 61.38, way below the average of 64.38 over the past 28 years.

Oil

Hurricane Karl grew stronger in the south-western Gulf of Mexico, forcing the closure of oil wells as it neared Mexico’s east coast, while Bermuda issued a hurricane watch for the approaching Igor. Despite the hurricane warning, US crude futures fell a third straight session on Thursday, dropping nearly 2 percent as expectations a key Canada-to-U.S. crude oil pipeline will restart soon and mixed economic data weighed on investor sentiment. On the DGCX, September crude fell $1.45, or 1.91 percent, to settle at $74.57 a barrel and is now trading from $74.87.

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