Published On: Sun, Nov 4th, 2012

US Dollar at Six-Month High Versus the Yen

The United States dollar rose on Friday to reach a six-month high versus the Japanese yen. As the United States employment report came out, the greenback also rose to a one-month high versus the euro. In October, employers in the United States hired an unexpected 171,000 employees. This number beat Wall Street’s best expectations and fueled speculation that the economy is improving. The unemployment in the United States was higher than in previous months at 7.9 percent. Most analysts believe this is because many out of work people were encouraged by the economy to return to their job searches.

In addition, the dollar managed to rise against the Australian dollar, the United Kingdom’s sterling and the Swiss franc. US-based stock markets dropped on Friday and fueled investors’ desire to purchase the safe haven currency. Both the Nasdaq composite index and the Dow Jones industrial average dropped by more than one percent during the day.
Greek Court Ruling

On Thursday, a Greek court issued a ruling that the pension reforms demanded by the International Monetary Fund and European Central Bank were potentially unconstitutional. If this ruling holds up, it will raise further concerns about Greece’s ability to meet the austerity demands of the ECB and IMF. This occurrence ultimately weighed down on the market place and the euro dropped under its 200-day moving average of $1.2830. During the trading session on Friday, it reached a low of $1.2819. This is the lowest Europe’s currency has touched since October 1. Most recently, the euro was trading at $1.2827, or 0.9 percent, lower for the day. Since September, the euro has mostly stayed between the $1.2800 to $1.3200 range. It has fallen 0.9 percent versus the greenback over the last week. This marks its strongest weekly decline since September.

The euro is expected to maintain its current range in the upcoming weeks. On the option market, signals indicate that the euro will not reach new highs versus the United States dollar. The one-month implied volatility for euro/greenback options dropped to 7.5 percent. This new low marks a fresh five-year trough for the currency pair.

Many Eurozone countries have still struggled over the past month. A report from Spain’s manufacturing sector showed that it contracted at its fastest pace since the month of July. Factory activity in Italy also shrank in October for the fifteenth consecutive month. Some relief could come to the embattled Eurozone if Spain requested a bailout package. Many leaders in the country are unwilling to do so because of the attached austerity measures the country must enact. This politically unpalatable action caused massive protests and civil unrest in Greece that are still going on today. If the Spanish government requested a formal bailout from the European Central Bank, it would enable the ECB to buy up some of the government’s bonds. This action would increase investor confidence and could stimulate the weak European economy.

The United Kingdom’s sterling continued to lose ground against the United States dollar on the back of the United States Nonfarm payrolls report. During the middle of the American session, the sterling was trading at $1.6025 to $1.6045 versus the greenback. Presently, Great Britain’s pound is fetching $1.6011 versus the United States dollar. This is 0.70 percent lower than its opening price. Many analysts see support levels at $1.6 to $1.5970. Resistance levels are forecasted at $1.6065, $1.6090 and $1.6120.
Japanese Yen Falls

The Japanese economy appears to have hit a rough patch. Soft data released from Japan and slowed corporate earnings indicate that a recession could be possible. Japan is expected to release its third-quarter GDP report on November 11. Some of the board members at the Bank of Japan have stated that investors can not rule out a recession in the third largest economy. The Bank of Japan policy meeting on October 4-5 showed signs that the Japanese economy may require more stimulus if it is to remain strong.

In recent weeks, Japan has become bogged down in a territorial dispute with China. Both nations claim a resource-rich chain of islands as their own. As the dispute heated up, Chinese consumers began boycotting Japanese products. Automobile exports to China dropped and exports have suffered. There are also signs that the Japanese electronics industry is slowing down.

On Friday, the greenback hit a peak of 80.67 yen which is its highest level since April 27. Later on in the day, it dropped to 80.37 which is still a 0.3 percent gain for the session. The euro fell 0.5 percent against the yen to reach 103.15.
US Election Awaited

Investors are waiting for the outcome of the United States presidential election on Tuesday. Among other things, the new president will have to choose whether to renew Federal Reserve Chairman Ben Bernanke’s tenure or not. Presently, the presidential race will be virtually tied. Although some believe a Romney win could assuage investor confidence, it could also send the dollar into a downspin since Romney is viewed as unlikely to keep Bernanke as head of the Federal Reserve.

Many analysts are also concerned about upcoming budget decisions in the United States. If the American government cannot resolve its debt crisis, it will face a fiscal cliff at the start of the year. Automatic budget cuts and tax increases will kick in if Congress cannot reach an agreement.

Currently, the dollar index is at 80.592 or 0.7 percent higher for the day. Earlier in Friday’s session, the index touched a two-month peak of 80.610.

Commodity Currencies Up

The Australian dollar rose to $1.0400 for the day and came close to hitting its October peak of $1.0412. If it breaks this barrier, it could retest the high of $1.0474 that it hit on September 28. The Aussie also managed to reach its August high of 83.55 yen.

On Friday, the New Zealand dollar performed admirably and increased to a one month peak of $0.8280 versus the greenback. The rise in commodity currencies has been bolstered in the last few days by new data from China. Chinese manufacturing data showed signs that the globe’s second-biggest economy may be ending its temporary downturn. On November 8, the Chinese Congress is expected to open with a new group of leaders.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.