Forex

Daily Forex Analysis (August 12, 2010)

Contributed by Finexo

By Finexo

The fallout from the Fed’s decision earlier this week, which demonstrated slow economic growth, is still felt by investors as they revise their strategies for a sluggish market. In this regard, investors are modifying their portfolios by eschewing stocks, commodities and volatile currencies and are seeking safe-haven investments such as treasury bonds, the yen and the dollar.

Disappointing indicators continue to be released that support the Fed’s assessment of a downward sloping economy. Yesterday, the US Department of Commerce announced that the US trade deficit widened by nearly 18.8 percent to $49.9 billion in June. Economic recovery in the UK was also cast into doubt as the BoE said economic growth this year will be smaller than expected.

The yen was the only currency to maintain strength against the dollar following an optimistic statement from the Bank of Japan. Mid-session, the USDJPY hit a 15-year record low at 84.70, amid reports that the Japanese government would take measures to weaken the currency, which eventually failed to materialize.

EURUSD

Amid fears of a global economic slowdown in US and China, insecurity and nervousness surrounded the euro and investors favored short positions against the single European unit, and sought refugee in the greenback. The Euro fell from 1.3100 to as low as 1.2830 putting an end to the uptrend that started in June. On the lookout for Friday, traders will be paying close attention to the release of German GDP data in second quarter. It remains to be seen whether European fundamentals will inject confidence into market sentiments, or will follow the way of their US, British and Asian counterparts.

GBPUSD

Continuing reports on the weak state of the UK economy are increasing selling pressure on the pound. The Cable lost almost 200 pips to trade below 1.5700 as economists responded to the disappointing UK unemployment figures. The pound continued to decline further after the BoE revised down its growth provision for 2011 from 3.4% to 2.7%. On the whole, as the UK emergency austerity budget is set to kick in, fears abound of tighter home credit conditions and of a rocky road to economic recovery.