NEWS / Foreign Exchange

The dollar remains weak under the pressure of subprime market meltdown and high oil prices

3/28/2007 03:25 pm: EUR/$..1.3321 $/JPY..116.86 GBP/$..1.9615 $/CHF..1.2152 AUD/$..0.8052 $/CAD..1.1589

Dollar Remains Weak After Benanke Testimony

The dollar remains weak under the pressure of subprime market meltdown and high oil prices. The currency extended its loss after a report showed US durable goods rose only 2.5%, not as strong as an expected gain of 3.5%. The January data were revised lower from ??“8.7% to ??“9.3%.

Federal Reserves Chairman Ben Bernanke testified in front of Congress today. His remarks were mixed and had little impact on the dollar. He said that core inflation remains uncomfortably high, trimming the expectations for a Fed rate hike in the short term. Recall that the Fed omitted ???additional firm??? in its monetary policy accompanying its interest rate announcement. Bernanke stated that economic uncertainty has increased recently. He said subprime problems seem contained.

Interest-rate futures pricing indicates that traders reduced their bets on that the Fed will cut its benchmark rate from 5.25% to 5.00% in August to 72%, down from 84% before Bernanke released his statement.

EURUSD will face interim resistance at 1.3350, followed by 1.3380 and 1.34. Additional ceilings will emerge at 1.3420, 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.

Yen Rose on Iran Tension Rumor

The yen rallied sharply across the board as a rumor that Iran has struck a US Navy vessel in the Persian Gulf military led oil to spike higher and investors to reduce their appetite for risky assets. Though the rumor was denied quickly, it is obvious that the market is nervous and ready to exit carry trades once there is any sign of geopolitical threat or global equity sell off. The yen strengthened to 116.40 from 118 against the dollar on Wednesday.

USDJPY encounters interim resistance at 117, backed by 117.30 and 117.50. Subsequent ceilings will emerge at 117.80, followed by 118 and 118.50. On the downside, support begins at 116.60 and 116.40, followed by 116. Additional floors are eyed at 115.70, backed by 115.50 and 115.

Sterling Down Following GDP Downward Revision

The sterling edged down initially after UK revised its fourth quarter GDP from 0.8% to 0.7%. However, the growth rate for the year 2006 reaches as high as 2.8%, above recent trends.

GBPUSD encounters interim resistance at 1.9650, backed by 1.9680, and 1.97. Subsequent ceilings will emerge at 1.9730, followed by 1.9750 and 1.98. On the downside, support begins at 1.96, followed by 1.9570 and 1.9550. Additional floors are eyed at 1.9530, backed by 1.95 and 1.9450.