NEWS / Foreign Exchange

The dollar slumped sharply against the euro and sterling

Dollar Slumped on Subprime Concern

The dollar slumped sharply against the euro and sterling during Friday Tokyo and European session. The euro rose to 1.3338 versus the dollar after breaking the 1.2350 handle last night. The sterling gained more than 1 cent to test 1.95 level versus the dollar.

The issue of US subprime mortgage sector is the focus of the market since this week. People are worried that rising defaults in subprime sectors might lead to a meltdown of the housing market, which may spread to the broader economy. The market is waiting for the Fed meeting next Wednesday for indications on the economy and inflation outlook.

Like yesterday, the market ignored the in-line inflation report from US. The Consumer Price Index increased 0.4% in February, slightly better than the forecast of 0.3%. Excluding food and energy prices, the core index rose 0.2% as expected.

In Friday US session, the dollar pared part of its loss after two better than expected manufacturing reports. US Capitalization Utility increased from 81.2 to 82 in February, above the estimate of 81.3. US Industrial Production rose 1%, reversing a 0.5% decline in the previous month and beating the forecast of 0.3%.

Besides, the Consumer Confidence Index by University of Michigan fell from 91.3 to 88.8 in March. This number had little impact on the market today.

EURUSD will face interim resistance at 1.3340, followed by 1.3360 and 1.3380. Additional ceilings will emerge at 1.34, backed by 1.3450. Support starts at 1.33, backed by 1.3280, 1.3250 and 1.3230. Subsequent floors are eyed at 1.32.

GBPUSD encounters interim resistance at 1.9440 backed by 1.9470, and 1.95. Subsequent ceilings will emerge at 1.9530, followed by 1.9550 and 1.9580. On the downside, support begins at 1.94, followed by 1.9370 and 1.9350. Additional floors are eyed at 1.9320, backed by 1.93 and 1.9250.

Carry Trades Dominates Yen